Law Office of Allan E. Dunaway, PLC

Unpaid debts can lead to wage garnishments

Kentucky residents may be interested in what can happen to them if they fail to pay their debts. While there are numerous actions a creditor can take to collect an unpaid debt, one of the most serious is wage garnishment. When a creditor has been unable to collect via traditional means, they can go to court and get an order for a wage garnishment, which allows the creditor to take a portion of an employee's paycheck until the debt has been paid. Federal consumer credit regulations limit the amount that can be taken in most instances. Employers are required to go along with any wage garnishment order. While consumer creditors are required to go to court to obtain a garnishment order, government obligations are not subject to prior court approval.

A garnishment covers the gross amount of the check, not just the take-home amount. That means that all compensation is seized, including the amounts that would normally go towards benefits, retirement and taxes. In addition, the garnished amount is still considered to be income for federal and state income tax purposes as the debtor is considered to have "constructively" received it.

Individuals may be able to avoid garnishment by working with their creditors. By avoiding creditors, individuals often leave the creditor with little alternative to wage garnishment. It is generally recommended that individuals engage with their creditors and work out a payment plan that can satisfy both parties.

An individual who is truly unable to keep up with financial obligations may want to consider bankruptcy. An attorney with experience in bankruptcy may be able to discuss the requirements and consequences of a Chapter 7 or Chapter 13 filing.

Source: Forbes, "Taxes From A To Z (2014): G Is For Garnished Wages", Kelly Phillips Erb, March 14, 2014

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