Can You Use a Personal Loan to Stop Wage Garnishment?

At some point, you might be informed by your employer that a portion of your wages is being withheld in order to pay a debt. When this happens, you might feel additional stress as you attempt to figure out how to stop the garnishment that’s shrinking your paycheck.

Should you use a personal loan to stop wage garnishment?

Let’s take a look at how wage garnishment works — and what you can do about it.

What Is Wage Garnishment?

Wage garnishment is a legal term that refers to having a portion of your disposable income withheld from your paycheck.

If you aren’t able to pay a debt, the creditor might go to your employer and have them collect payments and send them on.

Not every wage garnishment is court-ordered, but some can be.

For example, a debt related to child support or student loans can be garnished without the need for an order.

On the other hand, if a credit card issuer wants to garnish your wages, they must go through the court system and receive the appropriate order.

Income subject to wage garnishment includes:

• Hourly wages
• Salaried wages
• Bonuses
• Commissions
• Retirement program payments
• Other payments that might be related to awards or stipends for relocation

If you receive Social Security or unemployment income, that money isn’t subject to wage garnishment.

However, those types of income might be garnished to pay tax or student loan debt owed to the government, or for child support.

In some cases, your tax return might be garnished to pay federal debts like back taxes or federal student loans.

What Triggers Wage Garnishment?

In general, if you owe a debt, and you aren’t paying it, the creditor can go through the process of requesting that your wages be garnished.

The creditor will submit paperwork to the appropriate authority (or go through the court system) requesting that a portion of your paycheck be withheld from your employer.

Some of the debts that can result in wage garnishment include:

• Child support
• Alimony
• Credit card debt
• Medical debt
• Personal loans
• Federal student loans
• Private student loans
• Federal taxes

The federal government has its own guidelines for wage garnishment, but it also gives states the option to set stricter limits on garnishment for consumer debts (like credit card and medical debt).

As a result, some states restrict a bigger portion of your paycheck from garnishment and some states ban it altogether for consumer debt.

How Wage Garnishment Works

The process of wage garnishment is fairly straightforward.

In general, before your wages are garnished, you’re sent a series of reminders of your debt. If you don’t respond, or can’t pay the debt, the next step is to request garnishment.

Creditor requests wage garnishment

If your debt is in the form of back child support or a federal debt like student loans or taxes, the creditor can fill out and file the necessary forms.

The request is sent to your employer

After the form has been reviewed, and it’s been established you haven’t been making your payments, the information is sent to your employer. You usually receive a notice of the garnishment as well.

The employer deducts money from your paycheck

With the information, your employer can deduct the garnishment amount from your paycheck. The employer then sends the amount of the payment to your creditor until the garnishment period ends.

A lawsuit may be filed

With other debts, like consumer debt, the process is much the same. However, the creditor usually needs to file a lawsuit.

You might go to court where the creditor asks a judge to issue an order for your wages to be garnished. If there’s a judgment for wage garnishment, that will be submitted to your employer and the payments deducted from your paycheck.

What Happens When Wages Are Garnished

After the process has been followed, the amount of money withheld from your paycheck depends on the type of debt you have, as well as the amount of your disposable wages.

The Department of Labor considers your disposable earnings as what’s left over after deductions legally required to be made from your paycheck are taken. Some examples of legally required deductions include:

• Local, state, and federal taxes
• The employee share of Social Security and Medicare taxes
• The employee share of state unemployment tax
• State-required retirement withholdings

Other deductions, such as union dues and your voluntary retirement plan contributions, are usually not excluded when considering your disposable earnings.

Who at your job will know about it?

In general, wage garnishment will be known by those who manage the human resources department and complete payroll processes.

Your boss might know as well. Since the request goes to the employer, those who need to make the garnishment happen will know. However, that doesn’t mean that your coworkers will know.

Will you have enough money to pay your bills if this is done?

There’s no guarantee that you will be able to pay your bills if you’re subject to garnishment.

Depending on your bills, other debts, and your income, garnishment can make it difficult to pay your bills.

You might need to look for ways to cut back, increase your income or adjust non-required deductions, such as your voluntary retirement contributions, if you’re concerned about paying your bills.

How does it show up on your credit report?

In general, civil judgments and tax liens won’t show up on your credit report. Since 2017, the major credit bureaus don’t include this information in the public section of your report. However, your credit is still likely to have been impacted by missed payments.

What does it do to your credit score?

Even though the garnishment from a civil judgment doesn’t show up on your credit report, your credit score might be impacted by the actions that led to the garnishment. If you’ve missed payments before the creditor asks for wage garnishment, that has probably already damaged your credit score significantly.

How Much Do They Take Out for Wage Garnishment?

When looking at how much will be taken out, your employer will have an amount to withhold, based on a formula.

While there are some variations based on state laws related to consumer debts, you can generally expect that your wage garnishment will be a percentage of your disposable income.

When it comes to consumer debts, like personal loans, credit cards, and medical bills, the Department of Labor offers the following chart to illustrate the maximum you might expect to pay if you work a minimum wage job (at $7.25 per hour)

As you can see, if you work less than full-time at a minimum wage job, you aren’t subject to wage garnishment for consumer debts. There might be other exceptions, based on whether bankruptcy or a court order is involved.

What Are Your Rights?

In general, you have the right to verify that you truly do owe the debt before your wages are garnished. If you do owe the money, your main right is that your employer can’t fire you over wage garnishment.

If your employer does fire you because of a wage garnishment, you might be eligible for reinstatement at work — along with being paid for back wages. Additionally, if your employer garnished your wages improperly, you might be able to get the excess amount restored to you.

How You Can Avoid Wage Garnishment

In general, to avoid wage garnishment, you can use the following steps:

Verify the debt

Is it your debt? If you can prove the debt isn’t yours, your wages can’t be garnished and the matter ends.

Establish a payment plan

Instead of a wage garnishment, you might be able to work out a reasonable installment plan to discharge your debt.

Some medical providers offer no-interest plans, and some consumer creditors might be willing to settle your debt for less than you owe if you can make regular payments.

The IRS is usually willing to make a payment plan for tax debt, and there are ways to rehabilitate federal student loans that are in default.

Pay off the debt with a personal loan

A personal loan could potentially help you avoid wage garnishment. With a personal loan, you can pay off the debt and become current on your accounts.

However, it’s important to note that you need to be able to make your personal loan payments. Otherwise, you could fall behind again — and the personal loan lender could garnish your wages in the future.

A personal loan can be useful, though, if the term is long enough. Payments might be smaller than the garnishment amount if the interest rate and loan terms create a favorable situation.

You can use an installment loan calculator to see what your payments could be on a personal loan.

How to Fight Wage Garnishment

If you believe that your wages shouldn’t be garnished, there are ways you can fight the order.

The process you follow depends on the type of debt involved.

Child support

If you can’t afford child support, you need to request a court proceeding to review your circumstances and adjust the child support amount. If you can afford it, you need to pay the overdue amount or contact your lawyer to set up a plan for repayment.

Federal student loans

You need to send a letter, postmarked no later than 30 days from the date of the garnishment notice, requesting a court proceeding. You will need to have this proceeding with your loan servicer.

Tax debt

With the IRS, you need to request a hearing. You can then state your case at the hearing, where you might be able to come up with an alternative to wage garnishment.

Consumer debt

Your wage garnishment notice should have instructions about how you can object.

In many cases, if you can negotiate an alternative, you can avoid wage garnishment.

Filing for bankruptcy can also stop your wage garnishment, but you must be prepared for the hit to your credit score and its presence on your credit report.

While you might be able to set up a different arrangement, you still need to meet the obligation.

If you fall behind again, whether it’s with an alternative payment plan or some other arrangement, your creditor can come back and garnish your wages again.

Frequently Asked Questions