In 2020, seven states in the U.S. garnished more than $728 million from individuals awaiting their state tax refunds. For most people, wage and tax refund garnishments can cause significant financial burdens and undue stress.
There are many causes for someone to have issues with paying their debts. At some point, most people must deal with financial hardships, from unemployment to unexpected costs.
Wage garnishments are one of the many punishments creditors can levy against you. Failing to pay your debts in accordance with state and federal laws can get you into hot water. It also means dealing with annoying paperwork and credit score dings.
Want to learn more about how to protect yourself against wage garnishments? Read on for nine practical tips to help you deal with wage garnishments.
1. Understand the 4 Types of Wage Garnishments
Wage garnishments come in different ways. Someone can have their wages garnished from multiple sources.
Child and Spousal Support
It is vital to stay current on court-ordered child support because it gets backed by federal law. Once a wage garnishment gets attached for court-mandated family support, it is subject to automatic wage garnishment.
The most common federal debt that leads to financial problems is unpaid student loans. Student loan debt cancellation is a hot topic in the U.S., with millions of Americans struggling because their income after college isn’t enough to repay loans and maintain a standard of living.
State debts are typically unpaid state taxes, or fines levied against businesses. Although the state can garnish your wages or tax refunds, they don’t take precedent over federal garnishments.
Credit Card Debt
The second most common wage garnishment comes from private financial institutions that lend money via credit cards and personal loans. Numerous financial solutions address credit card debt before it leads to garnished wages.
2. File for Exemption as Soon as Possible
When you receive a garnishment notice, the creditor can take up to 10% of your earnings without a court order. Even if you owe the debt, it’s never fun to see your employer take a chunk of money out of your paycheck without your consent.
Explore the following exemptions to protect your income from these sources:
- Social Security
- Child support, and
As soon as you get notified of a possible garnishment, file an exemption request with the court that has jurisdiction. Include your name, creditor, and case number.
3. Negotiate with Creditors to Avoid Wage Garnishments
It is always wise to work with creditors at the first sign of financial hardship. Understand they have the upper hand because wage garnishment laws protect the creditor, not the consumer.
Most companies are willing to work with individuals to bring outstanding debts current or to negotiate a settlement. You, however, must be willing to work with your creditors.
4. Prioritize Your Expenses
You need to get real about your financial situation at the first sign of financial problems. Learn to prioritize your expenses. Your necessities are housing, utilities, food, and transportation.
Next, look at the debt that can lead to wage garnishments. You will need to cut back on entertainment, travel, and frivolous spending until you get your finances under control.
Pull your credit report to get a clear picture of your outstanding debt.
5. Review Your Employment Situation
Are you earning enough income to repay your debt? Living above your means is a common problem. Keeping up with the Joneses is a phrase used to describe people who overspend in an attempt to have a lifestyle similar to family and friends.
This practice is sure to lead to financial problems. If wage garnishment is in your near future, consider getting a second job. There are many opportunities to earn extra money to pay off your creditors.
6. Seek Professional Help
Before you lose hope, there are steps that you can take to have your wages released or prevent it in the first place. Not only can you challenge a wage garnishment, but depending on the amount, you may be able to have it reduced.
Seek the help of a credit counselor at the first sign of financial problems. If a creditor notifies you that a garnishment is coming, consult with a wage garnishment attorney.
Garnishments require court approval. You need legal representation to intervene.
7. Look into a Debt Consolidation Loan
A debt consolidation loan may be among your financial solutions if your credit hasn’t taken a severe hit. Research personal loans to move high-interest credit card balances. Look into interest-free balance transfer offers from your credit card issuer.
Homeowners should look into refinance opportunities to pay off outstanding debts and solve financial problems.
8. Speak with a Bankruptcy Attorney
There are pros and cons of declaring bankruptcy to stop wage garnishments. The biggest pro is that you get rid of the most outstanding debt and you can keep your home. The biggest con is child support, taxes, and alimony cannot get discharged in bankruptcy.
Although you’ll get a fresh start, bankruptcies stay on your credit for seven to ten years.
9. High Earners Consider Hiring a Chief Financial Officer
The best way to avoid financial problems is to have a firm understanding of your finances. People who aren’t good at managing their finances should seek assistance.
Chief Financial Officers (CFO) services aren’t only for businesses. High-earning individuals can benefit from their services. They’ll help you create a financial plan that includes money management, tax strategies, and other financial solutions.
Take Charge of Your Finances
Wage garnishments are one of the most stressful financial difficulties you can face. We know the feeling when you wake up to your alarm and check your bank account to see that there is less money than there should be.
When dealing with wage garnishments, it’s crucial to act immediately. It’s also helpful to be proactive so that you don’t end up in a debt spiral.
At Bennet Financials, we help you manage your finances and avoid financial trouble. Schedule a consultation with us now to see how we can help you keep more cash.