Creditors, or people who are owed money, can use wage garnishment in Colorado to collect from debtors, or people who owe them money, who do not pay. Wage garnishment is when part of the debtor’s wages or salary sent to the creditor, to pay the debt. Wages are not the only thing that can be garnished—any money belonging to the debtor, or owed to the debtor, which is in the possession or control of a third party (such as bank accounts or pension benefits) is potentially subject to garnishment.
Garnishment is a legal process, so a creditor (other than a tax authority, like the IRS) needs a court order to garnish wages. Before getting that court order, the creditor first needs a judgment in its favor. That means garnishment is not available until the creditor has sued the debtor and won, thereby establishing its right to the money.
Colorado Garnishment Exemptions and Non-Exemptions
Federal law exempts Social Security from being garnished for most debts. It can only be garnished for certain debts to the federal government (such as taxes), child support, and alimony.
Colorado has chosen to protect additional types of non-wage, non-salary income, especially retirement benefits:
- Pensions: not only does Colorado protect police, firefighter, state worker, and teacher pensions, like most states, but it also protects any retirement benefits and IRAs. It also protects veteran’s pensions.
- Many forms of public benefits or assistance are protected, such as: workers’ compensation; unemployment benefits; aid to families with dependent children; aid to the blind, disabled, or elderly; crime victim compensation.
- Some insurance benefits, such as annuities or disability payments up to $200 per month (or in their entirety, if taken in a lump sum); life insurance proceeds if the policy provides that they may not be used to pay the beneficiary’s creditors; group life insurance proceeds
Colorado Maximum Threshold
Under federal law—which applies everywhere in the United States—only the lesser of the following may be garnished:
- 25% of disposable income, with disposable income defined much more narrowly than it’s commonly used; for garnishment purposes, disposable income is income left after legally required paycheck deductions (e.g. FICA) are taken out. No other deductions or costs, no matter how necessary or whether they mandated by contract or employer policy, are considered. As a result, most income will be “disposable income.”
(Note: it’s 25% total of disposable income may be garnished, no matter how many creditors or claims there are.)
- The amount by which a debtor’s weekly income exceeds 30 times the minimum wage, which lets a debtor keep the equivalent each week of working at least 30 hours at minimum wage.
Colorado, like many states, has chosen to follow federal law on the subject, rather than set its own maximum garnishment threshold.
However, adding to the complexity is that there are certain debts, like tax obligations and child support, for which more of the debtor’s income than 25% can be garnished. For example, potentially 50 % - 60% of income could be garnished for child support.
Colorado Statute of Limitations
The first step to garnishment is obtaining a favorable judgment. That means that the first time period, or statute of limitations, relevant to garnishment is the statute of limitations for the debt that garnishment is based on. That will varies by cause of action, but for the most common consumer debts, the limitation periods are:
- Written contracts and open accounts (credit cards): 3 years
- Oral or verbal contract: 2 years
- Promissory notes and similar agreements: 6 years
The important thing is, i9f it’s too late to sue, it’s too late to garnish. Colorado’s statutes of limitation for contracts and credit cards are shorter than in many other states, which works to the debtor’s advantage and the creditor’s disadvantage.
Once a creditor has a favorable judgment, the creditor has another 6 years to garnish the debtor’s wages (or otherwise enforce the judgment or recover monies), though the creditor can apply to the court to renew and extend that period of time.
Writ of Garnishment in Colorado
The debtor’s own involvement in garnishment is minimal, since garnishment comes after the creditor has already won in court.
Garnishment begins when the creditor applies to the court in writing for garnishment to enforce or fulfill its judgment. The information the creditor needs to provide is straightforward: money is due it for the judgment; garnishment is necessary to enforce the judgment; and someone, such as the debtor’s employer (the “garnishee”), has money available which is owed to the debtor (debtor’s salary or wages), but which can be used to satisfy the debt.
That’s it: assuming the facts of the situation are correct—there is a valid judgment, garnishee has debtor’s money, etc.—garnishment will typically be ordered and there is little garnishee or debtor can do to stop it. More on Stopping Wage Garnishment in Colorado.
Getting Legal Help
Just because there is often little that can be done to stop garnishment doesn’t mean it’s not worth trying, depending on circumstances. There are ways to attack, challenge, or at least reduce garnishment, which is where a lawyer’s assistance is valuable. For example:
- Challenge the underlying judgment. Usually, if the underlying judgment was properly litigated, there is little that can be done to challenge it. On the other hand, if it had been rendered improperly, such as by “default” when in fact the debtor had never been given proper notice, there may be grounds to set it aside. Since Colorado has shorter statutes of limitations, at least for some causes of action, than many other states, one possibility might be to attack the underlying debt as too old.
- Show that calculation of the debtor’s disposable income is incorrect (too high), so that less can be garnished. For example, if some of the debtor’s income comes from protected or exempt sources, an attorney can help make sure that income that ought to be exempt from garnishment is being exempted. Since Colorado is at least as generous—if not more—than most other states in this regard, it is a good idea to look into this.
- Show that due to other obligations (e.g. child support), the debtor can’t pay any more.