Garnishment
Garnishment is a legal process where a creditor obtains a court order to take money directly from a debtor's wages, bank account, or other assets to satisfy an unpaid debt. It bypasses the debtor entirely — the employer or bank is ordered to withhold funds and send them to the creditor. Garnishment
Garnishment Definition
Garnishment is a legal process where a creditor obtains a court order to take money directly from a debtor's wages, bank account, or other assets to satisfy an unpaid debt. It bypasses the debtor entirely — the employer or bank is ordered to withhold funds and send them to the creditor. Garnishment is one of the most aggressive collection tools available.
Garnishment in Practice — Example
A freelance consultant falls behind on credit card payments totaling $15,000. After months of missed payments, the credit card company sues and wins a judgment. The court issues a garnishment order to the consultant's bank, which freezes $15,000 in the account. The bank then sends those funds to the creditor over a set schedule. Meanwhile, the consultant's ability to pay rent and operating expenses is severely impacted.
Why Garnishment Matters for Your Business
If your business has outstanding debts or judgments, garnishment can disrupt operations overnight. A bank account garnishment can freeze funds you need for payroll, rent, and vendor payments — creating a cascade of problems. Understanding the rules helps you protect your business and plan ahead.
As an employer, you also need to understand wage garnishment. If an employee's wages are garnished, you're legally required to comply with the court order. Failing to withhold and remit the correct amount can make your business liable for the debt. You'll need to adjust payroll processing and keep careful records.
How Garnishment Works
1. Creditor wins a court judgment against the debtor
2. Court issues a garnishment order to the employer or bank
3. Employer/bank complies by withholding funds
4. Funds are sent to the creditor until the debt is satisfied
Federal wage garnishment limits:
| Debt Type | Maximum Garnishment |
|---|---|
| Consumer debt | 25% of disposable earnings (or amount exceeding 30× federal minimum wage) |
| Child support | Up to 50-65% of disposable earnings |
| Federal student loans | Up to 15% of disposable earnings |
| IRS tax debt | Varies based on filing status and dependents |
Bank account garnishments don't have the same percentage limits — in many states, the full judgment amount can be frozen at once.
Garnishment vs Levy
Garnishment is an ongoing process — wages are withheld from each paycheck until the debt is paid. A levy is typically a one-time seizure of assets (like an IRS bank levy that takes what's in your account on a specific date). Both are involuntary collection methods, but garnishment is usually continuous while a levy is a single action.
FAQ
Q: Can a creditor garnish a business bank account? A: Yes, if they have a court judgment against your business. Some states offer exemptions for certain types of funds (like Social Security deposits), but business operating funds are generally fair game.
Q: How do I stop a garnishment? A: You can pay the debt in full, negotiate a settlement with the creditor, file for bankruptcy (which triggers an automatic stay), or challenge the garnishment in court if there are legal grounds.
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