Can a Loan Company Garnish Your Wages?

January 15, 2024 Personal Loans

Key Takeaways

Wage garnishment can result in less income and greater financial challenges. It’s important to be aware that your personal loan provider could sue you for failing to repay your debt, resulting in a wage garnishment court order. In general, a wage garnishment for a personal loan is characterized by:

  • Up to 25 percent of your disposable income can be garnished for ordinary debts
  • Student loan debt can result in 15 percent wage garnishment
  • Wage garnishments typically follow a lawsuit where the lender wins

By choosing reputable lenders with loan terms that align with your needs and repayment ability, you can increase your chances of a smooth loan repayment process. Remember, rebuilding your credit and savings after a wage garnishment order can be difficult, but patience and persistence will help you recover your financial stability over time.

Can a Loan Company Garnish Your Wages?

Wage garnishment allows creditors to take a portion of your wages to fulfill financial obligations such as loan repayment and child support. Defaulting on a personal loan may result in wage garnishment, so it’s important to know how it works and when it might happen.

This guide will cover wage garnishment, how it affects personal loan repayment, and advice to help you protect your financial stability and savings.

Understanding wage garnishment

Wage garnishment is a legal process where the court orders a portion of an individual’s wages to be taken from each paycheck. This portion is typically used to pay back the individual’s delinquent debt. It can often be frustrating for employees to have their wages garnished. Here is key information on understanding wage garnishment.

When can your wages be garnished?

Wage garnishment is a common court order for the following purposes:

  • Child support
  • Taxes
  • Student loan debt
  • Credit card debt
  • Personal loan debt

Wage garnishment might happen if a creditor or lender sues you for nonpayment of a debt and wins against you in court. Your employer will withhold a portion of your income each paycheck, up to a certain percentage. This process aims to satisfy a debtor’s delinquent debt obligations.

When does wage garnishment stop?

Once your delinquent debt has been repaid fully, your wages will no longer be garnished. The amount you need to repay may also include any applicable court fees and interest.

Challenging a wage garnishment order in court may be a way to stop your wages from being garnished.

Another situation where you might not need to have your wages garnished is if you satisfy the requirements for an exemption claim. Depending on state laws, having an income below a certain amount may mean your wages can be exempted from garnishment.


Types of loans and wage garnishment

Wage garnishment can result from various types of loans. Let’s go over the most common types of loans that could result in wage garnishment.

Personal loans

Personal loans grant borrowers a lump sum of money that can be used for a wide variety of purposes, such as debt consolidation and emergency bills. This loan amount needs to be repaid over time plus interest.

If you fall behind or default on your personal loan debt, your wages may be garnished. Your lender might file a lawsuit against you for debt nonpayment. If they win, the court may order a wage garnishment.


Mortgages are loans specifically designed for buying property. Mortgage lenders may employ wage garnishment to recoup losses from borrowers who default on their mortgages.

However, because mortgages are tied directly to the tangible asset of property, wage garnishments are not as common as with other types of consumer loans. If you fail to pay back your mortgage, you can expect your home to be foreclosed as the loan provider takes possession of the mortgaged property.

Auto loans

Auto loans are commonly used for buying vehicles. If you fall behind on your auto loan repayment schedule, you might end up having your wages garnished if your car gets repossessed. This depends on your state since state-level regulations often differ.

Student loans

If you default on your federal student loan, the government will be able to take up to 15 percent of your paychecks each month. While the portion is relatively lower than the amount garnished for other loan types, student loan wage garnishment doesn’t necessarily need a court order to occur. A student loan wage garnishment can pose significant financial and credit troubles, which is why it is recommended to responsibly manage student loan debt and proactively make the payments to avoid negative impact.

Other sources

Unpaid taxes can result in your wages being garnished. If the IRS pursues wage garnishment for taxes not being paid in a timely matter, a court order may not be necessary. Watch out for mail from the IRS, including a Final Notice of Intent to Levy, which will notify you of your tax payment status and potential wage garnishment.

Child support is a common source of wage garnishment. If you fail to pay child support according to your designated agreement, you could be liable for up to 65 percent of your disposable wages.

Credit card bills can lead to wage garnishment. If you have outstanding credit card balances, the creditor may pursue a wage garnishment order in order to ensure the balance is paid down over time. Since credit cards have relatively high interest rates when compared to traditional loans, it’s often advised to avoid overusing your credit cards if you can’t effectively manage the credit card debt.

Types of garnishment

Here are common types of wage garnishment that you might encounter if you find your wages garnished.

Wage garnishment involves your work paychecks being garnished. For ordinary debts, no more than 25 percent of your disposable income can be garnished. Ordinary garnishments exclude child support, bankruptcy, and state/federal taxes.

Nonwage garnishment is also known as a bank levy. Instead of drawing a portion from your wages, the creditor will be able to directly tap into your bank account.

Bankruptcy garnishment: In some bankruptcy cases, the court might order wage garnishment as a method to repay debt.

Federal and state tax garnishment: The government can garnish your wages if you have not paid your federal or state taxes.


How to avoid wage garnishment

While it is illegal to evade wage garnishment when it is a rightful court order, there are strategies you can employ that can help you avoid wage garnishment when legal. Here is essential information that can help you protect your finances.

Know your legal rights and protections

Wages cannot be completely taken for paying off debt obligations. Only a certain percentage of your wages can be garnished due to federal and state laws. In addition, if you do not make the minimum wages required for wage garnishment, you might not need to have your wages garnished.

Negotiate with your personal loan provider

Before a personal loan company starts garnishing your wages, you have the right to contest the action. Common actions are for the debtor to dispute the debt or propose alternative repayment plans in order to avoid the wage garnishment process.

Proactive negotiations with your lender can go a long way in avoiding wage garnishment. Wage garnishment is considered a type of escalation. Many lenders are willing to find a better, less time-consuming alternative to recoup their losses in case of a loan default.

If you are struggling to make your loan payments, it might be beneficial to communicate with your lender before you default. Some lenders prefer settling the debt or temporarily pausing repayments so the borrower can improve their repayment ability and stabilize their finances.


Uncommon information about wage garnishment

Legal nuances regarding wage garnishment

Usually, a court order needs to be obtained through the lender filing a lawsuit against you in court. This means that you could defend yourself against the lawsuit. It’s important to understand the legal basis of the legal proceedings of wage garnishment and delinquent debt in order to better navigate any financial and legal challenges.

Both federal and state laws impose limits on how much of your wages can be garnished. These limits aim to safeguard a portion of income for debtors so that they can still ideally afford essential living expenses.

Certain types of income may be exempt from ordinary wage garnishments. For example, disability payments may be exempt. If you don’t make enough income, this could also lead to you becoming exempt from your wages being garnished.

How to prevent wage garnishment

Alternative solutions before the ultimate court order of wage garnishment could help you avoid wage garnishments in the first place. Here is some expert advice that has helped debtors prevent their wages from being garnished.

Negotiate with creditors: If you have an active personal loan, you might be able to negotiate a new repayment plan or refinance the loan in order to receive new loan terms and conditions. Refinancing can potentially lower your interest rates or lengthen your

Settle your debt: Debt settlement can facilitate the process of recouping losses for the lender since they won’t need to file a lawsuit and take you to court. It’s a good idea to explore various debt settlement options if you know you have outstanding balances that are difficult to pay off.

Seek out professional advice: An expert financial advisor or credit counselor can help you determine your options when enduring debt obligations. An attorney can also help you build up supportive evidence for your case in case you get sued for nonpayment. Professionals can help create an individualized, suitable action plan that tackles your debt or wage garnishment situation.

When do loan companies have limited authority

Even though personal loan companies may appear to have all the control over the loan agreement and debt, there are limits when it comes to wage garnishment. For example, consider the following scenarios where lenders may have limited authority.

Statute of limitations: Each state has its own statute of limitations for debt obligations, with variations depending on jurisdiction and type of debt. Typically, the statute of limitations for debts goes between three and six years.

Collateralized debt: If you obtained a secured loan such as a mortgage or auto loan, wage garnishment might not result from defaulting on the loan. Instead, your collateral asset might be repossessed by the lender as per your loan agreement.

Specific clauses: Some loan agreements detail whether wage garnishment is allowed in case of a loan default. Before signing a loan agreement, it’s a good idea to check whether there is such a clause, especially if you are worried about repaying your debt on time.


Impact on credit score and financial health

Credit score impact

Getting your wages garnished could negatively impact your credit score. While wage garnishment doesn’t show up directly on your credit report, creditors could still discover that your wages are being garnished.

Strategies for rebuilding credit after wage garnishment

While it can be a daunting endeavor, it is certainly possible to reestablish your credit following wage garnishment. Here are some effective strategies that have helped people enhance their credit score

Long-term financial implications and considerations

Having your wages garnished over time is often stressful, leading to credit damage and financial burdens. It’s recommended to invest time in learning about personal finance and credit management if you receive a court order for wage garnishment.

Even though your disposable income is reduced as a result of wage garnishment, it’s still essential to build an emergency fund. This can provide a safety net that serves to improve your financial stability, especially in cases of urgent expenses that might lead to new sources of debt.

Remember, it’s good practice to perform your own research and seek expert advice in the form of a financial advisor or legal attorney. That way your debt repayment and wage garnishment management strategies can better align with your individual situation.


About The Author

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Ru Chen

Content Writer

Ru Chen is a content writer with several years of experience in creating engaging and well-researched articles. She mostly writes about business, digital marketing, and law. In her free time, she can be found watching horror movies and playing board games with her partner in Brooklyn.

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