The Surprising Effects of Garnishments on Your Budget

Having your wages garnished can put you in a tough financial spot. This is when a court orders your employer to redirect part of your paycheck to satisfy an unpaid debt. With smaller paychecks each month, you may find it difficult to meet your expenses.

“Wage garnishment can become necessary for debts such as child support or alimony after divorce, unpaid credit card, medical, or student loan debts, and unpaid taxes, among other reasons,” said Leslie Tayne, an attorney and founder of Tayne Law Group, a debt resolution law firm.

Wage garnishment usually starts in court when a creditor presents an unpaid bill and requests repayment from your salary. However, some government agencies, such as the Department of Education, can garnish wages without a court order.

How Much Does a Garnishment Cost?

The good news is that a court can’t garnish your whole paycheck. There are federal and state limits on how much can be garnished, and the exact percentage depends on the type of debt.

“If a consumer’s wages are garnished because of child support or alimony, the limit can be as high as 60% of their disposable earnings,” Tayne said. “Garnishment limits for debts such as credit cards or medical bills are lower, typically 25% of a consumer’s disposable income.”

Your disposable earnings are the portion of your weekly paycheck above 30 hours at the federal minimum wage (in other words, the excess above $217.50 per week). If your income is below that level, your wages may not be able to be garnished.

Some types of income—such as Social Security or veterans’ benefits—have additional protections from garnishment. However, these limitations may not apply to garnishments due to unpaid taxes or child support.

The bad news is that a garnishment can cost you more than the original debt. Depending on your jurisdiction, you may find court costs or sheriff’s fees added to the amount you owe. In addition, some states allow your employer to charge an additional fee for withholding garnishments from your paycheck.

Budgeting With a Garnishment

With a wage garnishment, you’ll have less money coming in, making it more important to budget carefully. Put paying for rent, food, and medical expenses at the top of your list and tighten all other expenses as needed to get by.

“It’s important that (people with garnishments) reassess their budget and make necessary adjustments,” Tayne said. “Going back to the drawing board with your budget after your wages are garnished will help build necessary and healthy financial habits for the consumer moving forward.”

One rule of thumb is to spend no more than 30% of your gross income on rent. Another budgeting strategy is the 50/30/20 rule, which has 50% of your income going to rent, food, and monthly expenses.

To lower your rent, consider getting a roommate or downsizing to a smaller home. To lower food costs, begin your grocery shopping in the sales sections, shop for groceries near closing time and pick up discounted fresh items, and ask your grocer to match a competitor’s lower prices.

How to Negotiate a Garnishment

If you don’t have enough money to pay your expenses after a wage garnishment, reach out for help.

“Contact the service providers of your essential bills and see if there is room for negotiation, or speak with a debt attorney who can do this for you. Negotiation options are often available for medical bills, student loan payments, and more,” Tayne said.

When a court decides to garnish your wages, it will provide you with instructions on how to challenge its decision. You may be able to challenge or reduce your garnishment by arguing that your income is exempt or that it would leave you unable to meet your necessary expenses. If the creditor made an error, you may also be able to argue that the debt is invalid.

When to Consider Bankruptcy After Garnishment

Is having your wages garnished a sign that you’re headed for bankruptcy? You’ll want to consider the option carefully.

“Filing for bankruptcy after a wage garnishment may be a realistic step consumers need to take to achieve financial stability in the future,” Tayne said.

In particular, people who are deep in debt or facing multiple wage garnishments may wish to explore bankruptcy, Tayne advised.

“Generally, the litmus test for my clients is when a consumer is unable to make ends meet for essential bills such as rent, medical care, etc,. and sees no path forward, it may be time to consider bankruptcy,” Tayne said. “Bankruptcy often halts garnishments, providing relief to the indebted consumer and giving them an opportunity to reassess their finances.”

Impact on Your Credit Score

Credit reports do not list wage garnishments, so having a garnishment will not damage your credit score. But your credit score will likely already be damaged from the unpaid debt. To improve your credit score, make on-time payments on your outstanding debts. You also may wish to review your credit reports.

“I recommend checking your credit profiles to see if there are any errors or inaccuracies and disputing them with the agencies as soon as possible,” Tayne said. “This is a quick step that can provide immediate relief that many consumers with compromised scores overlook.”

Getting a secured credit card is another way to build up a credit score. With a secured card, you make a deposit that serves as collateral for the account. The card’s credit line equals the amount of the deposit that you made when opening the card. Making small purchases and on-time payments with a secured credit card will improve your credit score.

“Remember to keep your credit utilization low, below 30% is a good rule-of-thumb, and always pay off the credit card at the end of every month,” Tayne said.

The Bottom Line

If you’re wages are being garnished, you may have difficulty paying other expenses. But there are things you can do to improve your situation.

You’ll want to budget carefully, making rent, food, and medical expenses top priorities. If you don’t have enough money leftover after garnishment to completely pay off your necessary expenses, reach out to service providers and ask to negotiate a lower payment. In some cases, you may be able to discharge your debts through bankruptcy.