The rate of new credit card delinquencies for American consumers hit 7.2% in the second quarter of 2023.1 If you have fallen behind on credit card payments, you may have concerns about wage garnishment. So, can credit card companies garnish your wages? The short answer is, yes. Learn why credit card companies garnish wages from your bank account or paychecks and how to catch up on credit card bills.
What Is Wage Garnishment?
You should know that credit card companies and loan companies can issue a wage garnishment notice if you miss payments. Wage garnishment is a legal procedure in which a borrower’s income—essential and disposable earnings—can be withheld due to unpaid debt. These debts can include credit card payments, personal loan payments, installment loans, child support, alimony payments, and other types of monthly payments that are due.
A credit card default means you have failed to meet the financial obligations of the credit card agreement, which usually means not adhering to the payment plan. In most states, the credit card issuer can then sue you for outstanding credit card balances.
Only four states in the U.S. do not allow a credit card company to have a borrower’s wages garnished. These four states include North Carolina, South Carolina, Pennsylvania, and Texas.
The credit card company will file a money judgment against you in an attempt to reclaim the unpaid debt. You will receive a court summons or alternative documentation related to the lawsuit when this occurs. You will need to appear in small claims court on the date listed.
What if I Ignore a Court Order by a Credit Card Company?
If you face a debt collection lawsuit and receive a summons, also called a court order, from a debt collector or credit card company, you will need to appear in court. You will ultimately lose the court case if you ignore a court order. The credit card company or debt collector will then be able to get a final judgment for the total debt settlement amount. The judge may also decide if the money should be withdrawn from your employment wages.
When you fail to appear in court, you will receive a default judgment, and the amount garnished can be up to 25% of your wages! This amount is the cap set by the Debt Collection Improvement Act of 1996. Depending on your state of residence, additional laws may be taken into consideration. Suppose your disposable earnings are not enough to satisfy the outstanding debt payments. In that case, the credit card company may also be able to seize your personal assets.
You may think that appearing in court is pointless if you are likely to lose the court case. However, there are defenses you may qualify for.
What if I Get a Wage Garnishment Order? Can a Credit Card Company Garnish My Wages?
Suppose a credit card company summons you to appear in small claims court. In that case, a judge will make a verdict based on evidence provided by the credit card company. If you lose a court judgment, the judge can order a percentage of your earnings withheld by an employer. This percentage will be withdrawn every paycheck until the outstanding credit card balance is gone.
Wage garnishment is not limited to disposable earnings. Money can be taken out of your commissions, bonuses, and retirement programs.
You may worry about your employment status when a court informs your employer of your court case. Title III of the Consumer Credit Protection Act (CCPA) protects employees from termination of employment when their wages have been garnished. However, if you are subject to a second court-ordered wage garnishment, your employer can legally terminate your employment. Title III also limits the amount of money that can be garnished every week for unpaid balances.
There is also federal law that protects some earnings from garnishments. Learn more about state and federal laws to get a better idea of your lawsuit and wage garnishment from major credit card companies and debt collection agencies.
Can I Object to a Wage Garnishment?
Yes! Contact an attorney if you think a debt collection lawsuit is dismissible or open to objection. You may be able to challenge a credit card issuer that attempts to garnish your wages. Your attorney will need to prepare the paperwork ahead of the court date.
When you receive your garnishment documents, there will be written instructions on how to object. If your documents do not contain this information, you may contact the clerk of the court.
Some courts provide an additional form so you can write an objection. When an objection form is not available, you will simply have to write out your objection on a blank paper and file it on time.
Keep in mind that a court can waive your objection to wage garnishment for the following reasons:
|Reasons for Waiving Objection to Wage Garnishment
|You fail to provide adequate reasons for an objection.
|Your objection may not be considered valid.
|You file with the wrong court.
|Your filing may be dismissed or transferred to the correct court.
|You file after the allotted period.
|Your objection may be rejected, or you may be subject to time-related penalties.
Does Wage Garnishment Affect My Credit Score or Credit Report?
If credit card issuers have garnished your wages, you may already know that your credit score has been affected. However, you can rest easy knowing wage garnishment will not appear on your credit report.
Having late unsecured debt payments can dramatically decrease your FICO score. Payment history accounts for a large percentage of your credit score calculation. If you’re interested in learning how to improve a bad credit score after a credit card company files a lawsuit, keep reading.
How Is a Credit Score Determined?
Credit scores allow financial institutions to make a lending decision based on your financial history. A credit score depends on the calculation of five financial categories. Take a look:
Your payment history is the most crucial category for credit score calculation. This category accounts for 35% of your FICO score. If you constantly miss payments, your score can be severely damaged. Having bad credit scores can affect borrowing opportunities.
The amount of debt you have makes up 30% of your total credit calculation. The less debt you have, the better your finances look to lenders.
Length of Credit History
The longer you manage financial accounts, the better your credit score will be. The length of your credit history accounts for 15% of your credit score.
New Credit Inquiries
Applying for too many loans within one year can decrease your credit score. New credit inquiries affect 10% of your credit calculation.
The type of loans you have will affect your score by 10%. Ideally, you should have both revolving credit and installment loans.
The timeline can vary, but typically, credit card companies wait several months of missed payments before considering legal action.
Yes, there are instances where individuals undergoing severe financial hardships can claim exemptions. Federal law also protects consumers from unfair debt collection practices.
Yes, settling a credit card debt can still impact your credit score, especially if you had several late or missed payments before reaching a settlement. However, settling debts with debt collectors can prevent further damage.
No, certain types of income, such as federal benefits like Social Security, disability payments, or veteran’s benefits, are generally exempt from garnishment for credit card debts.
Can I use a payday loan or personal loan for credit card consolidation, especially when facing court orders from a debt collector?
Yes, some individuals choose to use payday loans or personal loans for debt consolidation.
However, it’s essential to be cautious, especially if you’re already facing pressure from debt collectors or have received a court order. While these loans can provide immediate funds into your bank account, payday loans, in particular, often come with high-interest rates and can lead to a cycle of debt if not managed responsibly. Additionally, if you have other outstanding financial obligations like child support, it’s crucial to prioritize those payments as well.
Conclusion: Navigating Credit Cards with CreditNinja
Understanding wage garnishment and credit card debts is crucial for financial stability. At CreditNinja, we’re dedicated to guiding you through these complexities. Remember, with informed decisions and the right resources, you can confidently face financial challenges and chart a path to a secure future.