UPDATE: As of March 13, 2020 – the date that President Donald Trump declared the coronavirus crisis a national disaster – your federal benefits such as stimulus checks or IRS refunds can not be garnished due to unpaid debts. This new rule is in effect based on relief granted by the $2 trillion CARES Act for the duration of the COVID-19 emergency.
Being unemployed and waiting for that next unemployment check can be stressful. If you’ve fallen behind on some bills and let them slide for more than 180 days, you could be setting yourself up for some serious financial problems ahead.
If a creditor pursues legal action against you for unpaid bills, a court order could lead to wage garnishment. Wage garnishment allows the creditor to take a portion of your paycheck or income, and the amount will be deducted automatically from your bank account.
How to Handle Garnished Wages or Unemployment Benefits
In most circumstances, unemployment benefits are exempt from garnishment so you will not need to worry that creditors will have access to your unemployment income. However, if you were receiving severance pay from your last job, that income may be subject to garnishment.
Keep in mind that the only way for a creditor to garnish your wages is through a court order. This does take time, and you will be notified well in advance that this will be taking place. If you are being sued for debt owed, it’s a good idea to work with a lawyer and get some professional legal advice about the entire process.
Things to Keep in Mind About Wage Garnishment
Some other important things to keep in mind when your wages or severance pay will be garnished:If you have a joint bank account with a spouse, a creditor may have the ability to take money from your joint account, even if some of the money is from your spouse’s paycheck.Depositing your unemployment benefits in a separate account may help to protect other accounts you own or are linked to.
Creditors can get a new court order to garnish your wages when you switch employers. If you still have outstanding debts, you need to pay them off as quickly as possible to avoid these creditors from “chasing” you from employer to employer.
If you don’t show up for your court date, the court will grant the creditor the full right to garnish your wages and you won’t have any say in the matter going forward.
When your wages are being garnished, your employer will be fully aware of your current financial situation. In this case, carrying debt and being late on your payments can make you appear irresponsible or untrustworthy.
Once the judgment to garnish your wages has been rendered, you have very few options for stopping the process. By state law, creditors are required to provide you with plenty of lead time about what is about to happen.
When a creditor threatens that they will take you to court about your debt, it’s in your best interest to talk to an experienced attorney immediately. An attorney can guide you through the process and make sure you understand which funds are exempt from garnishment, and what rights you do have.