Can Credit Card Companies Garnish Wages?

Did you know that in the second quarter of 2023, the rate of new credit card delinquencies for American consumers reached 7.2%¹? If you find yourself falling behind on credit card payments, you might have some worries about wage garnishment. But fret not, because we’re here to help! The answer is, yes, credit card companies can indeed garnish your wages. However, we can guide you on why they resort to this measure and offer you advice on how to catch up on your credit card bills. Don’t worry, we’ve got your back! Did you know that if you miss payments, credit card companies and loan companies can issue a wage garnishment notice? Wage garnishment is a legal process where a portion of your income can be withheld due to unpaid debts, including credit card payments, personal loan payments, child support, and more. It’s important to be aware of how this can impact you. A credit card default occurs when you fail to fulfill your financial obligations according to the credit card agreement, particularly not making payments as agreed. In most states, the credit card issuer can take legal action against you to recover the outstanding balance. However, it’s worth noting that there are four states in the U.S. where credit card companies are not allowed to garnish wages. These states are North Carolina, South Carolina, Pennsylvania, and Texas. In case the credit card company decides to sue you for the unpaid debt, they will file a money judgment against you. This will result in you receiving a court summons or similar documentation related to the lawsuit. It’s essential that you carefully review this information and make arrangements to appear in small claims court on the specified date. If you find yourself facing a debt collection lawsuit and receive a summons, which is also known as a court order, from a debt collector or credit card company, it is essential to take it seriously and appear in court. Ignoring a court order will result in losing the case and allowing the credit card company or debt collector to obtain a final judgment for the total debt settlement amount. Moreover, the judge may also decide to deduct the money directly from your wages. It is crucial to note that failing to show up in court will result in a default judgment, potentially leading to garnishment of up to 25% of your wages. This amount is the maximum allowed under the Debt Collection Improvement Act of 1996, but your state’s laws may also come into play. Furthermore, if your disposable earnings are insufficient to cover the outstanding debt payments, the credit card company may have the possibility to seize your personal assets. You might feel discouraged about appearing in court if you believe you are likely to lose the case. However, it is important to be aware that there are potential defenses that you may be eligible for. If you receive a summons from a credit card company to appear in small claims court, it’s important to know the potential outcomes. The judge will review the evidence presented by the credit card company and make a judgment. If you happen to lose the case, the judge may order a certain portion of your earnings to be withheld by your employer. This amount will be deducted from every paycheck until your outstanding credit card balance is paid off. It’s important to note that wage garnishment isn’t limited to just your disposable earnings. It can also include commissions, bonuses, and even retirement programs. Understandably, you may have concerns about your employment status if your employer is informed about your court case. Fortunately, Title III of the Consumer Credit Protection Act (CCPA) offers protection to employees whose wages have been garnished, preventing them from being terminated solely for that reason. However, if you face a second court-ordered wage garnishment, your employer may have the legal right to terminate your employment. Additionally, Title III sets limits on the amount that can be garnished each week for unpaid balances. There are also federal laws in place to protect certain earnings from being garnished. To better understand your rights and options in regards to lawsuits and wage garnishments from major credit card companies and debt collection agencies, it’s advisable to familiarize yourself with both state and federal laws. Absolutely! If you believe that a debt collection lawsuit can be dismissed or objected to, it’s highly recommended to seek the assistance of an attorney. They can help you challenge any attempt made by a credit card issuer to garnish your wages. Your attorney will handle all the necessary paperwork prior to the court date. Upon receiving your garnishment documents, you will find detailed instructions on how to raise an objection. In the event that this information is not present, feel free to reach out to the court clerk for guidance. Some courts may provide a specific form for objections. However, if such a form is not available, you can simply write out your objection on a blank sheet of paper and ensure it is filed on time. Keep in mind that there are a few scenarios where a court may waive your objection to wage garnishment. These include:

Reasons for Waiving Objection to Wage Garnishment	Consequences
Failure to provide sufficient reasons for the objection.	Your objection may not be considered valid.
Filing with the incorrect court.	Your filing may be dismissed or transferred to the correct court.
Submitting the objection after the allotted time period.	Your objection may be rejected, or you may face time-related penalties.

If your wages have been garnished by credit card issuers, you may already be aware that it has had an impact on your credit score. However, it is important to note that wage garnishment does not appear on your credit report. If you have late payments on unsecured debts, this can significantly lower your FICO score. Payment history plays a large role in calculating your credit score. If you would like to know how to improve your credit score after a credit card company files a lawsuit, continue reading for helpful information.

How Is a Credit Score Determined?

Credit scores are used by financial institutions to assess a person’s financial history when making lending decisions. A credit score is determined based on five financial categories. Let’s take a closer look:

Payment History

Your payment history is the most important category when calculating your credit score. It accounts for 35% of your FICO score. Consistently missing payments can severely damage your score, which can affect your borrowing opportunities.

Total Debt

The amount of debt you have contributes to 30% of your overall credit calculation. Having less debt presents a better financial picture to lenders.

Length of Credit History

The longer you have managed financial accounts, the better your credit score will be. The length of your credit history accounts for 15% of your credit score.

New Credit Inquiries

Applying for too many loans within a year can have a negative impact on your credit score. New credit inquiries affect 10% of your credit calculation.

Credit Mix

The types of loans you have will influence your score by 10%. Ideally, you should have a combination of revolving credit and installment loans for a healthier credit mix. How long does it take for a company to initiate a lawsuit after defaulting on a credit card payment? The timeframe can vary, but typically, credit card companies wait several months of missed payments before considering legal action. Are there any exceptions or protections for individuals experiencing financial hardships to prevent wage garnishment? Yes, there are instances where individuals undergoing severe financial hardships can claim exemptions. Federal law also protects consumers from unfair debt collection practices. If I settle my credit card debt before it goes to court, will it still impact my credit score? Yes, settling a credit card debt can still affect your credit score, especially if you had multiple late or missed payments before reaching a settlement. However, settling debts with debt collectors can prevent further damage. Are all types of income, such as Social Security or disability payments, at risk of garnishment for credit card debt? No, certain types of income, such as federal benefits like Social Security, disability payments, or veteran’s benefits, are generally protected from garnishment for credit card debts. Can I consider using a payday loan or personal loan for credit card consolidation, especially when facing court orders from a debt collector? Yes, some individuals choose to use payday loans or personal loans for debt consolidation. However, it’s important to exercise caution, especially if you’re already under pressure from debt collectors or have received a court order. Payday loans, in particular, often have high-interest rates and can lead to a cycle of debt if not managed responsibly. Additionally, if you have other outstanding financial obligations like child support, it’s crucial to prioritize those payments as well. Understanding wage garnishment and credit card debts is crucial for maintaining financial stability. At Pachyy, we are committed to supporting you in navigating these complexities. Always remember that by making informed decisions and utilizing the right resources, you can confidently address financial challenges and pave the way to a secure future. For further reading, please refer to the following references:

1. Credit card and car loan delinquencies pass pre-Covid levels | CNN
2. Garnishment | US Department of Labor
3. Can Credit Card Companies Garnish My Wages? | Equifax
4. What Do I Do If I Am Served With a Summons for a Court Appearance? | Archovic Law
5. If Your Wages Are Garnished: Your Rights | Nolo