Changes in Garnishment Laws
Changes in State Garnishment Laws since 2013: The National List has requested “updated since 2013” State Collection Laws papers from a member attorney in each state. So far, two states, Alabama and Michigan, have reported significant changes to Garnishment Law.*
All states have laws that allow wage garnishment, or the withholding of a percentage of wages to pay a debt. State wage garnishment laws differ greatly and are often under revision. State department of labor agencies provide guidance and regulation on for wage-garnishment laws. Local and state tax authorities may garnish wages, but many state laws limit the percentage of pay they can take. A few states, such as Texas, limit wage garnishment to debt for alimony, child support, student loans and taxes. North Carolina also prohibits wage garnishment for commercial debt. Pennsylvania prohibits garnishment for commercial debt and allows the usual garnishments for student loans, child support and taxes. The state allows garnishment for back rent, criminal restitution and divorce matters. Nebraska reduces the garnishment percentage allowed from 25 to 15 percent for the head of the family, as defined in the state’s law.
Federal Wage Garnishment Law
The Federal Wage Garnishment Law requires garnishment for child support, student loans or back taxes and supersedes state laws that differ for these types of debt. Court judgments are not required to garnish wages for these purposes. Where state laws differ on allowable garnishment amounts, the Federal Wage Garnishment Law requires states to observe the law, federal or state, that allows the smaller garnishment amount.
In Alabama, the first 75 percent of a debtor’s wages are still exempt from garnishment. However, the personal property exemption, found at Ala. Code § 6-10-6 (1975), was amended in 2015 to increase to $7,500.00 the exemption for personal property. The $7,500.00 amount went into effect on June 11, 2015. Debts incurred prior to that date will be governed by the $3,000.00 exemption in place before the 2015 amendments, because exemption rights are “governed by the law in force when the debt or demand was created….” The statutory personal property exemption specifically does not apply to wages, salaries, or other compensation.
On the other hand, Section 204 of Article X of the Alabama Constitution (1901) allows a personal property exemption of $1,000.00 that does not exclude wages. As a result, a debtor can exempt the entirety of her paycheck if it is less than the $1,000, because of the constitutional exemption. Pruett v. Worldwide Asset Purchasing, LLC, 140 So. 3d 481 (Ala. Civ. App. 2013). Debtors often used the Pruett decision to obtain a complete dismissal of a garnishment whenever one paycheck was under $1,000, effectively gaining a perpetual $1,000 exemption. But in 2015, the Alabama Court of Civil Appeals clarified its holding in Pruett by explaining that it “does not allow for the application of a reoccurring $1,000 exemption for a claimant’s wages earned during each pay period in perpetuity.” Alabama Telco Credit Union v. Gibbons, No. 2140604, 2015 WL 6618785 (Ala. Civ. App. October 30, 2015). Furthermore, “[a]ny accumulation of wages exceeding $1,000 is not exempt under Ala. Const. 1901, Art. X, § 204, from the process of garnishment . . .”
The homestead exemption was increased from $5,000.00 to $15,000.00 effective June 11, 2015. When a homestead is jointly owned by a husband and wife, each may claim the $15,000.00 exemption. Ala. Code § 6-10-2 (1975).
On Oct. 1, 2015, there were several changes to Michigan’s periodic garnishment process. All of the new changes apply to writs of garnishment issued after Sept. 30, 2015.
Under the new law, periodic garnishments sent to a customer’s employer will remain in effect until the judgment is paid in full. Previously, periodic garnishments expired in six months. Creditors will no longer have to re-file their garnishments every six months. However, they will have to provide to the judgment debtor and his employer a statement every six months explaining the balance remaining on the judgment, including interest and costs. The new law also requires creditors to file a release of the garnishment within 21 days after the judgment has been paid in full.
The fee paid to garnishees as reimbursement for the cost of responding to periodic garnishments was increased from $6 to $35. It is not refundable if the judgment debtor does not work for the employer. An employer who does not file a disclosure within 14 days after receiving the garnishment must subsequently be sent a notice from the creditor informing the employer of its failure to respond to the garnishment. The employer then has 28 days to respond to the notice and begin withholding from the employee’s wages.
If the business still does not respond, then the creditor may request that a default be entered against the employer. Within 21 days after the judgment is entered, the employer may file a motion explaining that its failure to comply with the garnishment was inadvertent or was the result of some other good-faith mistake, and informing the creditor and the court that the employer will begin withholding from the employee’s wages immediately. Then the court must reduce the default judgment to not more than the amount that should have been withheld if the garnishment had been in effect for 56 days. Courts will also be required to set aside default judgments against employers if they did not owe their employees any payments or wages after the employer was served with the garnishment.
If a judgment is entered against an employer for not properly handling an employee garnishment, the new laws allow the employer to recover from the employee’s future wages any amount that the employer was required to pay to the creditor.
* If your state has had changes to garnishment laws or any other debt collection laws, and you have been asked to update the NL White Paper but have not yet done so, we encourage you to respond to NL ASAP. Our inclusive collection of State White Papers is used extensively by collection professionals and is a good source of free publicity for the authors and the firm.