Can credit card companies garnish your wages?
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Published 10:30 a.m. UTC July 13, 2023
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As prices surge and inflation takes a bite out of consumer budgets, many people are relying on credit cards to cover both everyday expenses and unexpected costs. That’s created a spike in accumulating balances that continue to rise with inflation.
In fact, consumer credit rating agency TransUnion found that bankcard balances reached a record high of $917 billion in the first quarter of 2023, a year-over-year increase of 19%. In that time frame, the average credit card holder’s balance rose from $5,010 to $5,733.
In a separate report, TransUnion forecasts credit card delinquency rates for 2023 may hit the highest rate since 2010, increasing from 2.10% in 2022 to 2.60% by the end of 2023.
Consumers facing increasing debt are rightfully concerned it may wreak havoc on their financial wellbeing. Consumers that fall behind and stop making payments run the risk of credit card companies taking matters into their own hands with wage garnishment.
Wage garnishment is when an employer is legally allowed to withhold and transmit a certain amount from an employee’s wages to repay debt.
Here’s what you need to know about wage garnishment and how this can happen.
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Can a credit card company garnish my wages?
Although the easy answer is yes, in order to garnish your wages, a credit card company has to take legal action, which is a process in itself. They need to sue you and win.
However, there are a few states that do not allow credit card companies to garnish your wages, with extreme exceptions:
- Pennsylvania
- Texas
- South Carolina
- North Carolina
When would a credit card company sue for wage garnishment?
Considering the legal process mentioned above, it is unlikely a credit card company will immediately sue for wage garnishment if you’ve just begun grappling with unpaid credit card debt.
But if the account is 180 days or more past due and the amount owed is large enough to justify the cost of a lawsuit, then there’s a good chance you will be sued, says Markia Brown, a certified financial education instructor. “It’s especially likely if you haven’t been answering their attempts to contact you about the debt,” she says.
Is there any way to stop it?
If you worry you might be close to the credit card company taking action, there are some ways to try to avoid it.
“The truth is that most companies do not want to have to [sue consumers], as it is time-consuming and costly for them,” says Derek Jacques, a bankruptcy attorney with The Mitten Law Firm in Southgate, MI. For that reason, one of the easiest ways to stop a garnishment is to communicate with your creditor, rather than sheepishly ducking those alarming statements.
“If you explain your situation to them, most companies will work with you to help you pay your debt without having to get the courts involved,” says Jacques.
However, there may be times when you will not be able to satisfy a creditor, which can lead to a wage garnishment.
“At that point, it may be a good idea to file for bankruptcy,” says Jacques. “Chapter 7 bankruptcy would put a halt to all debt collection activities and help to resolve the debts you cannot pay.”
If you are feeling overwhelmed with multiple credit card bills you’re unable to pay, you could also consider exploring the option of a debt management plan, where the credit counseling agency will contact your creditors on your behalf to negotiate a payment plan. You’ll then make one fixed monthly payment to the plan’s administrator, who will disburse it to the appropriate companies.
Can a credit card company garnish a bank account?
Similar to how a credit card company can garnish your wages by pursuing legal action, they can also go after your bank account. “This is most often done when the debtor is unemployed, as they won’t have wages to garnish,” says Jacques.
If the company obtains a court order to issue a writ of garnishment, a third party such as a bank or credit union would have to submit your assets to the court.
How much can a credit card company take?
Fortunately, the company can’t just take all your money to wipe out the debt in one fell swoop. The Debt Collection Improvement Act of 1996 sets a maximum ceiling of how much of your wages can be garnished.
The U.S. Department of Labor states that under federal law, states cannot take more than 25% of your wages or disposable earnings greater than 30 times the federal minimum wage.
Limits vary from state to state. For example, Connecticut allows for disposable earnings greater than 40 times the federal minimum wage.
To find out more about your state limits, contact your state labor office.
Are there any limitations?
As mentioned above, there are state limits to how much of your wages can be garnished, but it will never be more than one-quarter of your wages, as dictated by the Debt Collection Improvement Act of 1996.
Even if the credit card company garnishes your bank account directly, they cannot take government-initiated payments such as Social Security, disability checks and other federally provided forms of income.
How can consumers protect themselves from wage garnishment?
The best step is to pay your bills on time to prevent from being sued for nonpayment.
“If you [still] fall behind in payments, keep the line of communication open with debt collectors so an alternative plan of action can be explored,” Brown says.
Frequently asked questions (FAQs)
The best way to stop wage garnishment is to pay your bills on time. However, sometimes consumers should communicate with their credit card company. “Keep them apprised of the situation and why you are unable to pay your bill,” Jacques says. “[As a last resort,] filing for a personal bankruptcy would stop these types of activities and give you the ability to pay off your debts.”
The most they can garnish is 25%, as established by the Debt Collection Improvement Act of 1996. However, some states might have lower limits. Start with this database of contact information to check the specifics of your state.
“A credit card company can only garnish your wages or bank account by pursuing legal action against the consumer. If they win, you then may be issued what is known as a writ of garnishment,” Brown explains.
Wage garnishment would not show up on your credit score, but missed payments would. A late payment has the ability to lower your score by 180 points. The best way to combat this problem is paying on time. It’s important to check grace periods as well if you are struggling with making your credit card payments.
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