Millions of Americans currently find themselves in considerable debt, particularly given the adverse financial effects of the COVID-19 pandemic. Persistent letters, emails, and calls from creditors making collection attempts may be followed by requests for intervention from the court system for the repayment of delinquent debts, which is a daunting prospect for families and individuals who may be facing collection lawsuits and garnishments.
According to the National Consumer Law Center [1], over 4 million American workers have wage garnishments for consumer debts, not counting garnishments for child support, taxes, or bankruptcy, meaning that 2.9% of the workforce has paychecks garnished in relation to student loans, consumer, and credit card debts.
With the previous spike in unemployment rates during the pandemic and individuals finding themselves increasingly unable to pay judgments for old debts, in addition to current bills, many more households may soon be facing this prospect. Indeed, this is a likely scenario following the reemergence of collection lawsuits and garnishments that were temporarily suspended in several states during the COVID emergency, including New York.
The two main garnishment proceedings are wage garnishment and levying against your bank account, sometimes called bank account garnishment:
- Wage garnishment relates to situations where a court orders an employer to withhold money from an individual’s paycheck to pay debts that the employee has not repaid voluntarily. Wage garnishment is generally seen as a last-resort action by creditors, following unsuccessful collection attempts.
- Bank account garnishment allows a creditor to remove non-exempt funds directly from a debtor’s account and apply them to the delinquent debt balance. Bank account garnishment is typically an option used in cases where the debtor is not gainfully employed.
There are numerous state and federal laws on garnishment, with federal protections providing a baseline of protected wages and state laws offering more specific—and at times wider—protections for debtors, which are subject to continuous change. Therefore, it is crucial to have solid and up-to-date knowledge of state exemptions and to receive accurate and specialized legal advice when facing such a situation.
Wage Garnishment and New York State “Income Executions”
Garnishments, called “income executions” in New York, refer to orders issued by a court or government agency requiring employers to withhold a certain amount of money from an employee’s paycheck for the benefit of one or more creditors.
What this practically means is that the employer is ordered to take money directly from an indebted employee’s paycheck and send it to the creditor, instead. Consequently, the employee’s disposable earnings are directly and involuntarily reduced, by the portion set aside for the payment of the old debt. Regardless of whether you have unpaid credit card or medical bills, private student loans, or bank loans, an income execution/wage garnishment means you will have your paycheck reduced by the amount the court orders your employer to pay to your creditor.
The precise amount or percentage of one’s wages that may be garnished under a garnishment order is not unlimited. Title III of the Consumer Credit Protection Act (CCPA) [2] incorporates provisions protecting employees from discharge by their employers because their wages have been garnished for any one debt, as well as from garnishments that are overly burdensome, by limiting the amount of money that can be withheld from disposable income.
Under CCPA, the maximum weekly garnishment amount cannot exceed either 25% of the employee’s disposable earnings or the amount by which those earnings are greater than 30 times the federal minimum wage of $7.25 per hour ($217.50 per week in 2022) [3]. Where state law affords greater protection than federal law, i.e. when it shields a larger amount of salary from garnishment, state law will apply.
In New York, state law protects a higher percentage of wages and a higher minimum amount per week than that stipulated by federal law [4]. The New York State minimum wage of $15 an hour means that $450 per week is protected from garnishments, rather than the $217.50 under Federal law. New York state law also has exemptions in place for debtors based on receipt of or, in the case of New York, eligibility for public assistance.
In general, state laws protecting a higher flat amount per week mean that the wages of low-income debtors are almost fully protected, whereas protection of a higher percentage of debtors’ earnings benefits workers across the board [5]. It is also worth noting that eight other States also have similar laws in place protecting a higher percentage of wages and a higher minimum amount per week than federal law requires, whereas in North Carolina, Pennsylvania, South Carolina, and Texas, almost all wages are fully protected from garnishment.
One must also bear in mind that creditors may seek to evade protections by serving the wage garnishment order on the consumer’s employer’s office in another State, which has less favorable laws in place than the debtor’s State of domicile (residence) and employment.
Notwithstanding the above, attention must be paid to the fact that the rules are different when it comes to debts that are considered a higher priority, such as those relating to back taxes, student loans, and child support. In such cases, the government agency or creditor can garnish one’s wages without getting a court judgment, and the maximum garnishment amount may be considerably higher, too.
What Constitutes Disposable Income and Gross Income for the Purposes of Wage Garnishment?
The amount that may be ultimately garnished from wages depends on one’s income, either gross or disposable.
The disposable income against which a wage garnishment order may be issued is the amount of income left over after amounts required by law to be withheld, meaning taxes, social security, and unemployment insurance, are subtracted.
In this respect, one needs to bear in mind that any deductions not required by law, such as health insurance or voluntary retirement contributions, are not included in the calculation.
Accordingly, gross income is the amount earned before any of the deductions set out above are made. Even though garnishment laws are different in each state, generally speaking, most government-administered benefits, such as state pensions and Social Security benefits, cannot be garnished by a judgment.
Under New York State and Federal law, Social Security benefits, disability payments, retirement funds, child support, and alimony cannot be garnished for most types of debt, including private debt. Specifically, the kinds of income and benefits that can’t be taken by a creditor and are protected from debt collection include [6]:
- Supplemental Security Income,
- Social Security,
- Public Assistance (welfare),
- spousal support,
- maintenance (alimony) and child support ordered by a court,
- unemployment benefits,
- disability benefits,
- workers compensation benefits,
- veterans benefits,
- railroad retirement benefits,
- black lung benefits,
- public and private pensions,
- retirement savings (like a 401(k) and individual retirement accounts),
- private trust fund principal and 90% of any payments,
- 90% of one’s salary earned in the last 60 days.
The State of New York has an Income Execution Payment Calculator [7] to help you determine the payment amount due per pay period on an income execution (wage garnishment). However, and to ensure that a wage garnishment order will not have an insurmountable impact on your financial (and overall) well-being, and to assist you in sound financial planning, you should ask for accurate professional guidance on the amounts likely to be garnished from your income.
Can Someone Face Multiple Wage Garnishments?
Even though an employee may be subject to multiple income execution orders, garnishment limits apply to the cumulative value of all garnishments (the total amount taken from your check) sought by multiple creditors in a given pay period.
In other words, attention must be paid to the fact that the maximum legal amount of earnings that can be garnished relates to the total of all judgment creditors, rather than to each individual creditor. Consequently, one needs to ensure that, should a second wage garnishment be ordered in relation to the same paycheck, the related amount should not be in excess of the maximum amount permitted by law, which should take into account the amount taken in the first garnishment. Under federal law, if one has more than one garnishment, the total amount that can be garnished is limited to 10% of gross wages or 25% of disposable wages, whichever is less [8].
In practical terms, the way multiple garnishments work out is by having the first creditor take the maximum amount until the related debt is paid off, at which point the second creditor is then allowed to begin the same process.
The Process of Wage Garnishment, in a Nutshell
Creditors wishing to receive payments for private debts by garnishing part of a debtor’s wages must first obtain a judgment to this effect from the courts.
If a creditor’s debt collection suit is successful, it sets out the precise amount of the debt in question, as well as the amount that is to be garnished from the debtor’s wages.
A notice of income execution is then sent to a New York City Marshal, confirming that the creditor has obtained the judgment and can begin garnishing the debtor’s wages. A copy of said income execution must be served within 20 days by the Marshall to the debtor, who will then have 20 days to contact the Marshal to set up a voluntary payment plan.
If no such contact is made, the Marshal then has the right to serve the income execution to the garnishee (meaning the debtor’s employer), so that the debt can begin to be withheld directly from the debtor’s paycheck and sent to the creditor. The garnishee will then have 15 days to start the payments and, more often than not, an employer will notify the employee that a garnishment has been served. Following the commencement of wage garnishments, the Marshall will send the debtor account notifications from time to time, with information on how much of the debt has been paid since the garnishment began and how much of it is still left.
In view of the fact that garnishment orders entail involuntary payment procedures that can also be burdensome for employers, i.e. garnishees, federal law offers some protection for employees, who cannot be fired simply because their wages are garnished (15 U.S.C. § 1674). Nevertheless, this protection only applies when an employee is being garnished for a single debt. If one’s wages are being garnished for two or more debts, employers have the option to fire the indebted employee if they decide to do so.
Several States have additional rules in place: under New York state law, employers cannot fire, refuse to promote, or take any negative action against employees, solely because of an income execution [9].
As relevant laws differ from State to State, and are constantly subject to change, it is always highly recommended to seek specific advice in this respect.
Bank Account Garnishment in New York
Court actions for bank account garnishment for unpaid debts is usually a last resort action that creditors may choose to take in cases where debtors fail to respond to repeated requests to settle debts. In this respect, it is important to note that, while federal and state laws protect wages before they are paid into employees’ bank accounts, wages and other funds may be subject to seizure once deposited in the bank account, unless there are applicable state laws to the contrary.
New York is one of the few States where judgment creditors (meaning creditors, or their debt collectors, who have attained a judgment against a debtor for unpaid debts) are required to take certain steps before being able to levy against or restrain a debtor’s bank account.
The Exempt Income Protection Act (EIPA) of New York sets limits to the ability of a creditor to restrain, or “freeze,” bank accounts. If no exempt funds can be identified in the bank account, any amount over the $1,950 (as of 2022) that is present in a debtor’s account can be frozen, including money in a savings account.
In certain cases, such as when an account includes directly deposited government benefits and other types of income that are exempt from creditors, this protected amount may go up to $2,625 (as in 2022). To this effect, banks are under obligation to analyze funds in related accounts and ensure that they do not contain exempt funds.
At the same time, judgment creditors must issue exemption forms to the bank, which are to be issued to debtors, as well as address any claimed exemptions appropriately. Nevertheless, it must be stressed that a debtor’s bank account may be frozen upon a request filed by a creditor, until exempt and non-exempt funds are separated, leaving debtors without access to their funds in the account for a considerable amount of time.
In practice, if wage garnishment is taking place for delinquent debts at the maximum amount, it is unlikely that the debtor’s bank account will be frozen as well, meaning that the remaining wages after maximum garnishment would be exempt from debt collection, even if they are deposited into a bank account.
Can a Wage Garnishment Be Stopped in New York?
Once a wage garnishment notice is received by a debtor, it means that a creditor has obtained a judgment against them. Indeed, once the relevant documentation is served to the debtor and the garnishee (the employer), the creditor will continue to garnish wages until the full repayment of the debt or unless the debtor takes some active measure to stop the garnishment.
An income execution judgment can only be lifted by vacating it in court. In order to do this, one has to file court papers and appear in court, at least once, either with or without a lawyer. If the judgment is vacated, the court can order the creditor to return all earnings back into the debtor’s account and the garnishment is then over.
If one chooses not to vacate or is denied the vacatur, there is still an option of seeking a modification of the garnishment order, by filing an “Order to Show Cause“. In this event, submitting proof showing why the debtor cannot afford to lose out on the amount set out in the garnishment order, such as proof of income, rent, bills, and other monthly necessities, may play an important role in succeeding to have the order modified, so as to allow for sufficient income to cover those necessities. A judgment may also be vacated on procedural grounds: if the debtor can duly prove that the papers of the lawsuit were not properly served, for example, it is likely that this will suffice.
It is crucial to receive accurate and effective consultation to address income executions, given that wage garnishment to collect a debt will inadvertently make it (even more) difficult to cover regular living expenses and the legal framework may differ across states.
Stopping Garnishment by Filing for Bankruptcy
Another way that may enable a debtor to stop most wage garnishments, including wage and bank account garnishment—especially if facing multiple debts—would be filing for bankruptcy. One needs to carefully consider the available options, including whether to file for Chapter 13 bankruptcy or file for Chapter 7 bankruptcy, as the effect this will have on the particular kind of debt(s) one owes differs considerably.
One of the benefits of filing for bankruptcy is that it may stop many garnishment types, while also erasing other debts in the process and creating a disincentive for creditors to seek more garnishment orders from a particular debtor. In this way, the debtor is normally allowed some time (and invaluable breathing space!) to consider matters, while the trustee overlooking the case examines the bankruptcy petition and related debts, assets, and income.
In accordance with the U.S. Bankruptcy Code [10], filing for bankruptcy puts into place an automatic injunction called an “automatic stay”. The stay stops most creditors (including collection agencies and certain government entities) from commencing new actions or continuing actions to collect debts while the bankruptcy case is in progress. It has immediate effect from the moment one files for bankruptcy, irrespective of which type of bankruptcy they file for, and it applies to individuals as well as entities. Again, attention must be paid to the fact that certain types of high priority debts, such as child support and alimony, may still be subject to garnishment, even during the period when the automatic stay is in effect.
Even though an automatic stay offers considerable relief and an opportunity to consider the situation and find a realistic solution for addressing it, it is not an absolute, final answer. It is temporary in nature, it might last only for as little as 30 days if this is not the first time someone has filed for bankruptcy, and there is also a possibility that it may not even be put in place at all if you have improperly filed multiple bankruptcies in the past year. This is to prevent people from abusing the bankruptcy process. Moreover, creditors retain the option of asking the court to allow wage garnishment to continue, provided they are able to show that there is a good reason for doing so. Bankruptcy forces those creditors to “come to the table” for a final resolution under the Bankruptcy Code, instead of garnishing wages. It gives you, as a bankruptcy debtor, back some power to determine what will be discharged altogether (wiped out) and what will be paid, as well as how much.
If you are facing financial difficulties and are worried about their effects on your income, or if you are already subject to garnishments, you may wish to receive specialist professional advice to assist you with financial planning and addressing related court orders. Our legal team here at Roemerman Law can help you explore available options and make the most of the related tools available to you.
Contact Roemerman Law today for a free consultation
References
[1] https://www.nclc.org/images/pdf/special_projects/covid-19/IB_Wage_Garnishment_Covid_and_Beyond.pdf
[2] https://www.fdic.gov/regulations/laws/rules/6000-900.html
[3] https://www.tax.ny.gov/enforcement/collections/ie_calc.htm
[4] https://codes.findlaw.com/ny/civil-practice-law-and-rules
[5] https://www8.tax.ny.gov/IEPC/iepcStart
[6] https://www.nycourts.gov/courthelp/Aftercourt/exemptIncome.shtml
[7] https://www8.tax.ny.gov/IEPC/iepcStart
[8] https://www.law.cornell.edu/uscode/text/15/1673 (15 U.S.C. § 1673)
[9] https://www.nysenate.gov/legislation/laws/CVP/5252
[10] https://usbankruptcycode.org/
