New Legislation for Historic Shifts in Wage Garnishment?

If millions of Americans are now affected by wage garnishment for consumer debts, do we need to reexamine the state and federal laws surrounding wage garnishment?  While consumer bankruptcy can help Chicago residents to handle their debts, wage garnishment is affecting many people in Illinois.  According to Illinois Legal Aid, it’s important to understand how wage garnishment currently works in our state, and to consider how new wage garnishment legislation could help debtors and employers alike.
What is Wage Garnishment?
We’ve talked a lot about wage garnishment, but how does it work?  In short, when a creditor claims that you owe money, the creditor can file a lawsuit against you.  If the company wins a judgment against you, that judgment will say how much money you owe.  Then, the creditor can try to collect that money by taking a cut from your wages.  Wage garnishment is also known as “wage deduction.”
In the event that a creditor is able to garnish your wages, then your employer must reduce your paycheck by a specified amount and turn that money over to your creditor.  When does wage garnishment begin?  As soon as a creditor sends a “summons” or a “citation” to your employer, your employer must begin deducting a portion of your wages.
How much can a creditor take from your paycheck?  Under Illinois Law, a certain amount of your paycheck is exempt.  You’re allowed to keep specific amounts of your take-home pay, and you must be permitted to take home at least the following:
·      $371.25 per week
·      $742.50 bi-weekly
·      $804.37 twice per month
·      $1608.75 per month
If your take-home paycheck is less than any of these exempt amounts, then your wages cannot be garnished.  However, if your take-home pay is greater than these amounts, then a creditor can be deducted by the following amounts:
·      15 percent of your gross pay; or
·      Amount of your take-home pay that exceeds the exempt amount.
Some consumer advocates believe that current state laws for wage garnishment are too high, especially given the shift in reasons for wage garnishment.  Should the laws change to reflect consumer debts?
Reasons for Wage Garnishment Have Changed—Should the Law Change, Too?
According to wage garnishment experts, our country has seen “a clear shift in the types of debts that are pursued.”  Only ten years ago, the “overwhelming majority of pay seizures” were related to child support payments.  Now, child support is no longer a major reason for wage garnishments.  Rather, the trend has shifted to creditor garnishments, while child support seizures only account for about half of all wage deductions.
Indeed, student loan bills have led to a surprisingly high number of wage garnishments in recent years.  But it’s important to know that garnishment for student loans works differently than for other consumer debts.  In the case of student loans, “collectors can obtain a garnishment after an administrative procedure set by federal rules.”  To have your wages garnished for failure to pay student loan bills, you must be more than nine months behind, and the seizure is “capped at 15 percent of disposable income.” About $1 billion has been collected in the past several years for student loan debt.
And the rises and shifts in wage garnishments also place a burden on employers.  Given that wage garnishment laws vary from state to state, national employers can be at risk of making a mistake.  And if an employer doesn’t handle a garnishment order properly, then that employer can become liable for some or all of the debt in certain cases.
As such, the American Payroll Association has requested that the Uniform Law Commission draft a model state law on wage garnishment, which it hopes will be adopted.  Consumer advocates also support new legislation on wage garnishment laws, helping debtors and employers to manage the shifts in American consumer debt.
If you have questions about managing your debt and whether bankruptcy might be the best option for you, contact the Emerson Law Firm today.  One of our experienced Chicago bankruptcy lawyers can discuss your options with you.
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