Some of you might wonder why so many American citizens are carrying so much debt, and the answer to that question is remarkably simple. You need only look at the education system to see that of all the skills children and young adults learn, personal finances very rarely figure in that equation.
What this invariably leads to is young men and women in their 20s and early 30s struggling to manage a debt burden without any of the skills to do so. In fact, the only way many people deal with the stress is to simply stop paying attention to it, otherwise they will be unable to live their lives in any reasonable way.
But the problem is that ignoring emails and phone calls from creditors does not make the debt go away. Just because you believe that you shouldn’t have to repay your debts doesn’t mean that your creditors share the same belief system.
The Process
While creditors will initially use emails and phone calls to recoup the money owed to them, they will only do that for so long. After a period of weeks or months has passed, they will then pass the process of debt reclamation to a debt collection agency. If that is not successful then your creditor may be forced to petition the court to have the money owed to them deducted directly from your paycheck.
This is called wage garnishment and is usually the very last resort taken by any creditor because of the paperwork involved.
What Is Wage Garnishment
Put simply, a wage garnishment is where your employer deducts an amount of money from your salary, which is then sent to creditors to repay your debt. In the vast majority of cases a wage garnishment is only possible when a court order has been obtained, although there are exceptions to this.
From an employer’s point of view this is not an ideal situation because it creates additional work for the payroll department, and it is not unusual for certain types of employers to look for ways to simply manage you out of the company. You do have some legal protection in situations like this, but those matters are best discussed directly with your attorney.
Court Order Exceptions
There are certain types of debt where your wages can be garnished without a court order. These include:
- Unpaid IRS taxes
- Student loan debt (up to 15% of your disposable income)
- Child support/support arrears (up to 60% of your disposable income)
All forms of wage garnishment are structured in such a way as to allow you to maintain a reasonable standard of living, but while repaying the money you owe.
Wage Garnishment in New Jersey
Federal law states that up to 25% of your disposable income (that left after taxes are paid) can be garnished from your wages. In New Jersey there are separate laws which state that you have to pay the lesser of two potential amounts.
This is calculated based on the federal poverty level, and your income in relation to that. Your wages will be garnished at a rate of 10% if your income is less than 250% of the federal poverty level, and at 25% if your income is over 250% of the poverty level.
Example:
The current federal poverty level is $15,379 for a family of two, and 250% of that is $38,477. If you earn less than that amount your wages can only be garnished at 10% of your disposable income. If you earn more than $38,477 then your wages can be garnished at up to 25% of your disposable income.
You can only have one garnishment coming from your paycheck even if you have multiple creditors. The amount garnished will be limited to 10 – 25% of your disposable income until the first debt is repaid, and then your next creditor will be considered.
Your Fico Score
It’s worth noting that wage garnishment can impact your credit score as severely as declaring bankruptcy – it will stay on your credit report for 7 years. That\’s why it makes more sense to avoid wage garnishment and simply repay your creditors directly, or through the debt collection agency.