Two of the most commonly employed collection remedies are Wage Garnishments and Bank Account Restraints, which are controlled by both New York State and federal law. The rights and protections afforded under the two statutory schemes differ, depending on the nature of the debt, and a bankruptcy filing can impact one type of creditor differently from another.
An Income Execution (a/k/a “Wage Garnishment”) is an order from a court or government agency that, when served upon your employer, requires your employer to withhold a certain sum of money from your paycheck and then send said money directly to the creditor. Most creditors (i.e., credit card debt, medical bills, personal loans, etc.), commonly referred to as Judgment Creditors, cannot obtain an Income Execution until they get a court judgment stating that you owe them money. However, there are certain types of debts that can result in your wages being garnished without a court judgment, as follows:
Before a Judgment Creditor in New York can obtain a Wage Garnishment, the debtor’s weekly “disposable earnings” must exceed either 30 times the federal minimum wage (currently $7.25 per hr.) OR 30 times the State minimum wage (currently $8.00 per hr.), whichever is greater. The statutory “base line” figure is currently $240.00 per week, based on the larger NYS minimum wage. “Disposable earnings” are what is left over in your paycheck after your employer has taken out all legally required withholdings, such as income taxes, Social Security, Medicare and NYS disability insurance. Voluntary deductions such as health insurance are not part of this formula. If a debtor’s disposable earnings do not exceed the statutory “base line” of $240.00 per week, no garnishment can occur. If it does exceed said base figure, only the amount above the base line can be garnished—the first $240.00 per week cannot be touched.
In a Wage Garnishment issued by a Judgment Creditor, the collecting Sheriff or Marshal will serve you with a document called an Income Execution. After such service, the debtor has twenty days to commence voluntary payments to the Sheriff or Marshal of the required amount. As you can probably imagine, debtors rarely make such voluntary payments. If no voluntary payments are made, the collecting Sheriff or Marshal will then serve the Income Execution on your employer who will then commence withholding THE LESSER OF the following:
Example # 1: Assume that the debtor’s gross income is $1,500.00 per week, and his weekly disposable earnings are $1,200.00 per week. Under Calculation #1 the creditor would seize $150.00 per week (10% of $1,500.00 = $150.00). Under Calculation # 2 the sum would be $300.00 per week (25% of $1,200.00 = $300.00). Under Calculation #3 the sum, would be $960.00 per week ($1,200.00 minus $240.00 = $960.00 per week. Since the $150.00 per week sum from Calculation #1 is the lesser amount, this Judgment Creditor would garnish $150.00 per week.
Example # 2: Assume that the debtor’s gross income is $280.00 per week, and his weekly disposable earnings are $250.00. Under Calculation #1 the garnishment amount would be $28.00 per week (10% of $280.00). Under Calculation # 2 the garnishment amount would be $62.50 per week ( 25% of $250.00 = $62.50). Under Calculation # 3 the amount would be $10.00 per week ($250.00 minus $240.00 = $10.000). Since Calculation # 3 yields the lesser figure, this Judgment Creditor would garnish $10.00 per week.
In New York it is most common for 10% of a debtor’s gross salary to be garnished (per Calculation #1). It is very rare for 25% of a debtor’s disposable earnings (per Calculation #2) to be garnished by a single Judgment Creditor.
Only one Judgment Creditor at a time can garnish your salary. If two Judgment Creditors have lodged Income Executions with the Sheriff, the one who filed the papers first gets paid in full before the second one steps up to the plate.
Absent fraud or other unusual circumstances, a Judgment Creditor’s debt is usually dischargeable in bankruptcy, and the Automatic Stay created by the bankruptcy filing stops the Judgment Creditor’s garnishment immediately and permanently. If a Judgment Creditor’s debt is ultimately determined by the Bankruptcy Court to be non-dischargeable (a rare occurrence), the garnishment re-commences upon the entry of the Court’s judgment on the issue.
If you owe Child Support the creditor (or government) can garnish your wages without getting a court judgment. This type of garnishment has priority over all other garnishments (i.e., student loan, judgment creditor), regardless of when filed, except for an IRS levy/garnishment that was entered prior to the date that the underlying child support order was established. A Child Support Creditor can garnish up to 50% of your weekly disposable earnings (as defined above) if the debtor is supporting a current spouse or dependent child (a “second family”), and up to 60% if the debtor is not supporting a second family. An additional 5% can be garnished in either scenario for support payments over 12 weeks in arrears.
Child Support obligations are not dischargeable in bankruptcy, and the Automatic Stay created by a bankruptcy filing does not stop the collection of these types of debts. However, the small amount of income remaining after a Child Support garnishment often makes a bankruptcy filing even more attractive. Other debts (i.e., credit cards, etc.) that maybe could have been managed, but for the Child Support garnishment, can become the financial Armageddon for a debtor suffering a Child Support garnishment. Bankruptcy will usually get rid of these other debts and give the debtor a fighting chance for financial survival.
Most federal student loans are deemed in default upon failure to make a payment for 270 days. The federal government then has the right to an Administrative Wage Garnishment without first obtaining a court judgment, although (1) you must be provided with a Notice of Intent to Garnish before the garnishment starts, and (2) there is a period of time where you can request a hearing to contest the issue.
Before a federally insured student loan creditor can obtain an Administrative Wage Garnishment, the debtor’s weekly “disposable earnings” (as above defined) must exceed 30 times the Federal minimum wage (currently $7.25 per hour), or $217.50. If a debtor’s disposable earnings do not exceed the statutory “base line” of $217.50 per week, no garnishment can occur.
The government can garnish THE LESSER OF 15 % of your weekly disposable earnings OR the amount that your weekly disposable earnings exceed the statutory “base line” of $217.50. For example, assume a debtor has disposable earnings of $300.00 per week. The government can garnish THE LESSER OF the amount that his disposable earnings exceeds the statutory “base line” ($300.00 minus $217.50 = $82.50), OR 15% of his disposable earnings (15% of $300.00 = $45.00). Since $45.00 is less than $82.00, the government could garnish $45.00 per week from this debtor’s salary.
If there are multiple garnishments pending, the maximum total allowable garnishment is 25% of debtor’s disposable earnings. Accordingly, if the federal government is garnisheeing you 15% for a defaulted student loan and a Judgment Creditor’s wage garnishment order is thereafter filed, only 10% of your disposable earnings can go to the second-in-line Judgment Creditor.
A private student loan lender does not have the same collection rights as the government does. They are NOT entitled to an Administrative Wage Garnishment upon a default, and are no different than credit card debt when it comes to enforcement remedies. They first must successfully prosecute a lawsuit and obtain a Court judgment against you. Once this happens, their collection remedies are the same as those outlined above for Judgment Creditors.
Except in very rare circumstances, student loans are not dischargeable in bankruptcy, regardless of the nature of the lender. The Automatic Stay created by the bankruptcy filing does bar all collection efforts, including garnishment, during the pendency of your bankruptcy case, regardless of whether the student loan is dischargeable. However, once your bankruptcy case is over the garnishment will re-commence. A typical Chapter 7 case is only pending for 90 days, so the reprieve is short-lived.
If you owe federal tax debt the IRS has the power to “levy” (i.e. garnish) your wages without first getting a judgment. Thankfully, this is only done as a last resort, when all other collection methods (such as Installment Payment Arrangements) have failed.
With most creditors, federal and state law limits the amount that can be taken from your wages. However, the Internal Revenue Code only limits what the IRS is required to leave. It must be nice to be the one who makes the rules!! The IRS will take as much as it can from your wages, and only leave what the tax code says is necessary for a family of your size to pay for “basic living necessities”, which is a term that they define. This IRS table for 2014 demonstrates how much of your wages in 2014 will be protected.—and it is not very much. For example, a single person with no other exemptions who gets paid weekly will only be allowed to keep $195.19 per week. Anything over and above this amount will be garnished and sent to the IRS. Suffice it to say, you never want things to get to this point with the IRS, as it is very difficult to live on what they leave you with.
IRS tax levies take priority over all pre-existing garnishments except Child Support, when the underlying Child Support order was in effect prior to the tax levy. Due to the large amounts that the IRS can seize and the “25% of disposable earnings” limitation placed on the amount that Judgment Creditors and Federal Student Loans can garnish, when an IRS levy is made any existing garnishment by a Judgment Creditor or Federal Student Loan is usually held in abeyance until the IRS is paid in full.
If you owe income taxes to NYS the State will file a Tax Warrant against you, which is the equivalent of a legal judgment and gives them a lien against your real and personal property. NYS can garnish your wages for past due taxes, but they are subject to the same limitations as Judgment Creditors (as outlined above) when it comes to how much they can garnish. Thankfully, NYS does not have “super creditor” powers like the IRS.
In certain instances past due income tax debt can be discharged in bankruptcy, but not always. In any event, the Automatic Stay created by the bankruptcy filing does bar all collection efforts, including garnishment, during the pendency of the bankruptcy case, regardless of whether the income tax is dischargeable. However, if it is not dischargeable, once your bankruptcy case is over the garnishment will re-commence. Since a typical Chapter 7 case is only pending for 90 days, the reprieve is short-lived when the tax debt is not dischargeable. However, even if the Income Tax debt is not discharged, obtaining a Bankruptcy Discharge of your other debt (i.e., credit card, medical, etc.) can frequently make it possible to deal with the severe budgetary constraints resulting from the Income Tax levy.
Although judgment creditors frequently have no idea where you do your banking, they do know which county you live in and will frequently serve an Information Subpoena and Restraining Notice on all of the banks in your area, hoping to find an account that has your name on it. If they do the account is immediately restrained (or “frozen”), which deprives you of access to the funds in said account. This can cause all kinds of problems, because any checks issued (but not cashed) prior to the Restraint will bounce. If one of these checks is to your landlord, you have a problem. The judgment creditor then has the collecting Sheriff or Marshal serve a Property Execution on the bank, at which time the funds (up to the judgment amount plus interest) are removed from the account. However, due to a 2009 statutory amendment, banks in New York State are no longer allowed to restrain a bank account containing less than $1,920.00, or $2,500.00 if there are exempt funds (i.e. Social Security, pension, etc.) directly deposited therein. This has resulted in far fewer bank accounts being restrained in this State.
It is unusual for a Judgment Creditor to simultaneously, and successfully, garnish your wages and restrain your bank account, although there is nothing which legally prevents this. The reason this rarely occurs is because the only funds typically found in a bank account are wages, and if these wages are already being garnished to the maximum amount the remaining wages are exempt by statute, even if deposited in a bank account.
The above two scenarios are dealt with on a regular basis by the experienced bankruptcy lawyers at Hayward, Parker & O’Leary, Esqs. An Automatic Stay is created when a bankruptcy petition is filed, except when child support/arrearages are involved, and it is the Automatic Stay that immediately brings an end to any Wage Garnishment or Bank Account Restraint. However, because it usually takes the Court several days to mail out the Notice of Commencement of Case to the necessary parties, bankruptcy Attorney Michael O’Leary take certain extra steps to make certain that the necessary parties (i.e. judgment creditor’s attorney, debtor’s employer and/or bank, the collecting Sheriff or Marshal) are aware of the bankruptcy filing in “real time” — usually within an hour of the filing. This extra effort allows a debtor to regain control of his paycheck and/or bank account as soon as possible, which can be the first step down the long road to financial recovery.