George Simons | August 16, 2022
Summary: Have your wages been garnished? If so, it shouldn't affect your credit score. Here is SoloSuit's guide to wage garnishment and its potential impact.
If you default payment on your debt, your creditor will likely send your debt account to a collection agency whose job is to recover the debt. Usually, the collection agency uses several strategies to recoup the debt, such as negotiating a repayment plan with you.
However, if the debt recouping methods fail to solve the problem, the agency may file a lawsuit against you. If they win the suit, the court may pass a wage garnishment order allowing the debt collector to deduct a portion of your income to settle the debt.
A wage garnishment order affects your finances, making it difficult to fulfill your financial responsibilities. In addition, it indirectly impacts your credit history and reduces your creditworthiness to lenders in the future.
This article answers all your questions about wage garnishment, its impact on your credit, and how to avoid it.
Wage garnishment is a debt collection procedure where a court-issued order is used to retain part of your income directly from your employer. The retained amount of money is then sent to the debt collector as a part of your payment for the outstanding debt until the debt is cleared or otherwise resolved. Some examples of debts that are commonly collected through these methods include child support, student loans, and consumer debts.
The debt collector obtains a wage garnishment order from the court after either winning a debt collection case against you or a default judgment (when you fail to respond to the lawsuit). Depending on state laws and the creditor, your employer will be required to comply with the order, effected within 5 to 30 days of notice.
A few years ago, the credit bureaus recorded wage garnishment judgments in a debtor's credit report. However, that changed in 2017. The three credit bureaus- Equifax, Experian, and TransUnion- exempted civil judgments and tax liens as public records entered in a credit report.
For this reason, wage garnishment orders or judgments have no direct impact on your credit scores.
However, a wage garnishment judgment isn't good for your creditworthiness. For example, since lenders request your financial obligations and liabilities when assessing your borrowing requests, you have to disclose any wage garnishment information on your income.
Unfortunately, this detail is a potential red flag that may cause the lender to decline your loan application.
Wage garnishment is one of the methods debt collectors use to recoup unpaid debts. The collectors must file and win a debt lawsuit against you to obtain the court order to garnish your wages. However, your debt will have come a long way before it ends up in a debt lawsuit.
Ideally, failing to pay your debts as required damages your credit history and score. Here's what to expect when you miss paying your debts.
If your debt payment is late by at least 30 days, your creditor may report it to the credit bureaus. A missed payment is a negative entry in your credit history.
Federal law allows an original creditor to send your delinquent debt account to a collection agency. Usually, this occurs when the payment is 90 to 180 days past its due date. At this point, the debt becomes a liability to the creditor. As a result, the creditor decides to sell the debt to the collection agency and report the account as charged-off. This is another negative entry into your credit history that adversely affects your credit score.
Although there's no law requiring a debt collector to report a collection account to the credit bureaus, they may do so at their discretion. The credit bureaus will record the debt as a new account in your credit history, including all the payments you make towards the debt. Therefore, if you miss payments on the collection account, it may show up in your credit history.
The negative entries on your credit history stay there for up to seven years since the original date of delinquency. Because your credit history accounts for a large portion of the FICO calculations, the negative entries significantly impact your credit scores. However, the effect fades away during the seven years before the bureau removes the entries from your report.
Alternatively, you may request the creditor or debt collector to remove all negative information regarding the debt from your credit files. This usually happens after settling the outstanding balances on the debt or negotiating a repayment plan.
There are many reasons why you may fall behind in your debt payments. For example, you may have recently lost your job and can't fulfill all your financial obligations. If you're in a similar situation, you may want to find possible remedies to avoid plunging into the long-term consequences of defaulting debt payments.
Some of the possible solutions include the following:
If you have more than one debt, a debt management plan allows you to make a single payment through a credit counselor to cover all your unsecured debts. The credit counselor then distributes the payment to your creditors according to the plan.
This option simplifies the debt payment processes and reduces the time it takes for you to become debt-free.
A debt settlement is an agreement between a debtor and a creditor. In this arrangement, the creditor forgives a portion of the debt to allow the debtor to pay less than what they owe. Usually, the debtor makes a lump-sum payment of the settlement amount in exchange for debt clearance.
If you've already been sued for the debt, you can start the settlement negotiation process by sending a Debt Lawsuit Settlement Letter to whoever is suing you. Keep in mind that most debt collectors are willing to settle for less than the original amount, so don't ever offer a full payment until you've discussed a settlement.
Filing for bankruptcy is also another option for evading wage garnishment. This option is convenient if you have no means of paying off your debts for a long time. However, it affects most of your assets and tarnishes your credit.
If you receive a debt collection lawsuit, you need to respond to it as soon as possible. Here are the steps to follow:
The first step is to confirm whether the debt is actually yours. Usually, the debt collector provides you with a debt validation letter listing all the details about the debt. However, if you aren't satisfied with the details provided, you can send a Debt Validation Letter to the collector requesting more information.
To learn more about debt validation, check out this video:
Whether you owe the debt or not, you need to respond to the suit to avoid a default judgment against you. This involves preparing a written Answer document and responding to all the claims listed in the Complaint document.
The Answer document also contains your affirmative defenses. These are the reasons why you believe the plaintiff has no case against you. Some examples of affirmative defenses include:
Learn more about how to respond to a debt lawsuit here:
Asserting your affirmative defenses in the Answer document is the only chance you have to state any issues about the lawsuit. Unfortunately, you can't bring up new affirmative defenses later in the lawsuit. As a result, you may miss a good chance of winning the lawsuit or avoiding a wage garnishment judgment.
Lastly, you need to file your Answer with the court responsible for the lawsuit and also send a copy of the document to the plaintiff or their lawyer. There are crucial guidelines you need to follow to ensure that you file your Answer properly. For example, you must file the document within the timeframe provided by the state laws.
SoloSuit makes it easy to fight debt collectors.
You can use SoloSuit to respond to a debt lawsuit, to send letters to collectors, and even to settle a debt.
SoloSuit's Answer service is a step-by-step web-app that asks you all the necessary questions to complete your Answer. Upon completion, we'll have an attorney review your document and we'll file it for you.
"First time getting sued by a debt collector and I was searching all over YouTube and ran across SoloSuit, so I decided to buy their services with their attorney reviewed documentation which cost extra but it was well worth it! SoloSuit sent the documentation to the parties and to the court which saved me time from having to go to court and in a few weeks the case got dismissed!" – James
You can ask your questions on the SoloSuit forum and the community will help you out. Whether you need help now or are just looking for support, we're here for you.
Here's a list of guides for other states.
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Need more info on statutes of limitations? Read our 50-state guide.
Need help managing your finances? Check out these resources.