The Truth About Wage Garnishment and Credit Collections

Most debtors never think it could happen to them. One minute they are using credit cards for their living expenses, and the next, after ignoring multiple notices from collection agencies, they find a judgment entered against them that takes a bite out of their paycheck every week.

Let’s take a closer look at the truth about wage garnishment and how this powerful legal remedy may be used to help create restitution for collection agency clients and the debtors they aim to collect from:

How wage garnishment plays a part in credit collections

Wage garnishment dates back over 100 years as a recourse for businesses to collect monies owed to them after creditors refused repayment for services rendered. The term is most often associated with (and in some states may only be used for) back taxes, child support, student loans, and unpaid court costs.

In other words, the truth about wage garnishment is that it was primarily designed for and used by government entities in order to ensure they received the money owed to them from debtors. It was only later that it became a legal solution for other businesses that were not paid debts owed to them.

Interesting statistics on current wage garnishment in the U.S.

ADP, a payroll-processing firm, researched wage garnishments in the U.S. via a report titled, Garnishments: The Untold Story. They aimed to take a closer look behind the scenes at how wage garnishments affected employers and employees.

Their report found that of the 7.2% of workers who had their wages garnished, only 2.9% were for (and the statistic was not broken down further) student loan debts and “court ordered consumer debt garnishment.”

The majority of these, 48%, were employees in the manufacturing division with transportation and utilities comprising another 42% of garnishees. As expected 10.5% were between the ages of 35 and 44, keeping in mind that those on a fixed income (i.e. SSI recipients, etc.) may not be garnished.

Therefore, from a collections’ standpoint where we see only 2.9% of “other rulings” the statistics indicate that while wage garnishments may be growing, courts are still unlikely to act rashly on the behalf of a collection agency hoping to be paid by a debtor.

Can credit collection agencies use wage garnishments for clients?

Before your collections agency embraces this legal remedy, you’ll need to check the laws in your state. Note, as we suggested above, that several states only allow wage garnishment on very specific debts, immediately ruling out wage garnishment for many businesses.

However, consumers are often shocked to learn that their credit card debt, among other fees, may be subject to wage garnishment if it is not paid in a timely manner. As a last resort for very stubborn accounts, taking legal actions to collect credit card debt via wage garnishment is not only possible but a viable solution.

It should also be noted that wage garnishments have the potential to backfire. While laws are in place to protect consumers, employers may choose to release an employee from service after their third wage garnishment request is received.

While this action against an employee who is having their wages garnished seems extreme, reports have also shown that wage garnishment decreases the morality and productivity of an employee.

Therefore, the real truth about wage garnishment is that it is both a difficult judgment to obtain from the courts as well as a solution that might be best used sparingly only as a last resort of your collection agency’s process.

Tell us in comments how your agency has successfully used this process and/or why garnishment might, or might not, work to your advantage in your state.

Citations: http://hr.blr.com/HR-news/Compensation/Wage-Garnishment/Wage-garnishment-US-History-trends-practices/#

By | 2017-05-10T10:49:28+00:00 March 9th, 2016|Blog|0 Comments

About the Author:

Graduated from University of Utah - business degree 1990. Served in US Army as an interrogator / linguist, then as a tactical intelligence officer - Military Intelligence 1986-1990. Managed Western US sales operations for NY based collection agency 1990-1992. Founded Direct Recovery Associates, Inc. 1992-present