Garnishment is when a creditor has the right to take property of or money owed to a debtor—which is in the control of a third party—to satisfy debtor’s debt. An example of property in the control of another might be a bank account; an example of money owed to a debtor might be the debtor’s wages or salary, since that is money debtor’s employer owes him or her for working. In fact, wage garnishment is probably the most common kind of garnishment; or if it’s not, it’s still one of the most common kinds and is what most people think of as “garnishment.”
Often, creditors will threaten garnishment. They can’t do this until—and unless—the get a court judgment in their favor. That means they need to sue the debtor in court and win; the garnishment is then a court mechanism for enforcing the judgment and making debtor pay when he or she isn’t doing so voluntarily. (Exception: there a few debts, like to the IRS, where the creditor doesn’t need to go to court first; however, almost all private party debtors or consumer debts need to first be successfully litigated.)
By federal law, Social Security is mostly protected from being garnished. It can only be garnished for a few specific debts, such as child support, alimony, federal taxes, and certain other federal government debts.
New Mexico, like other states, has created exemptions to garnishment, setting out types of income which—in whole or in part—cannot be garnished. Fittingly enough, in a state known as a good place to retire, its broadest category of exemptions is for pension and retirement benefits: all pension or retirement fund proceeds are exempt from garnishment. (This is apparently double true for public school employees in New Mexico, who have the exemption of their pensions from garnishment reinforced by a separate statute.) This is much broader than most states’ protection for retirement benefits.
In addition to pension or retirement benefits, New Mexico also exempts:
Not all exemptions are absolute; some (such as worker’s compensation, for example) still allow garnishment for child support debts.
For middle class and well-off residents, New Mexico tracks federal law in terms of how much non-exempt income may be garnished: up to 25% of disposable income. (A total of 25% of disposable income, no matter how many creditors or attempted garnishments there are.) For this purpose, “disposable income” is narrowly defined: income left over after legally required deductions from a person’s paycheck (e.g. FICA; unemployment contributions; state employee retirement contributions) are taken out. Deductions that are not mandated by law, including such important ones as health insurance, 401(k) contributions, or union dues, are not considered in calculating disposable income.
There is additional protection for lower-income residents. No matter what, a debtor’s weekly income can only be garnished to the extent it exceeds 40 times the minimum wage; i.e. in order to allow the debtor at least something to live on, he or she gets to keep the equivalent of working at least 40 hours a week at minimum wage.
So what can be garnished is the lesser of the amount by which debtor’s weekly wage exceeds 40 times minimum wage OR 25% of the debtor’s disposable income.
First, before garnishing, there must be a successful lawsuit. That means the original lawsuit must have been brought within the appropriate statute of limitations (time to sue) for that kind of debt or claim. For common consumer debts, limitation periods are:
If the creditor has gotten past that first hurdle—sued, won, and obtained a judgment—the creditor then has 14 years to garnish debtor’s wages (or otherwise enforce the judgment). This gives the debtor a chance to start making more money (the creditor hopes), so that garnishment is worthwhile.
The debtor has surprisingly little involvement in garnishment—or maybe not surprisingly, since, after all, the debtor has already had and lost his or her day in court. Instead, garnishment is between the debtor and the party holding money owed the debtor, typically the debtor’s employer (holding the debtor’s wages). This third party is called the “garnishee.” The creditor applies in writing to court for garnishment to enforce its judgment against the debtor. In this application, the creditor states that it is owed money as a result of a judgment; that garnishment is necessary for the creditor to be paid; and that the garnishee has money available and owed to the debtor which can be used to satisfy this debt.
After this, the court serves paperwork on the garnishee requiring the garnishee to verify that it has money owed to the debtor. The garnishee cannot challenge the creditor’s right to garnishment, though if there is something factually incorrect, it can challenge that; e.g. if the debtor no longer works for the garnishee, then the garnishee would not have to turn over money for the creditor’s benefit. However, if everything is factually correct or can be made factually correct—and if the garnishee has non-exempt income owed to the creditor—garnishment will go forward. More on Stopping Wage Garnishment in New Mexico.
By the time garnishment is going forward, in most cases, the creditor’s right to the money is well-litigated and well-established. However, there may be grounds on which the creditor can fight, or at least try to reduce, the garnishment, and in trying to do so, a lawyer is invaluable.
One option is to challenge the underlying judgment on which the garnishment is based. It’s usually hard to do this on substantive grounds—i.e. on the merits—at this stage of proceedings, but if something was done procedurally wrong (the statute of limitations had passed; the debtor never received proper notice of being sued or a chance to defend him- or herself; etc.), it may be possible to set the judgment aside.
Another option is to challenge the garnishment as too late, on grounds that the statute of limitations for enforcing a judgment has passed. Given a 14-year statute, this will, however, rarely be the case.
A third option is to show that calculation of the debtor’s disposable income is incorrect, often by showing that much or most of the debtor’s income is from exempt sources.
A fourth option is to show that as a result of other obligations, such as child support, the debtor is already “fully garnished” (e.g. paying 25% of nonexempt income) and can’t pay another dime.
For more information:
New Mexico Statutes[http://www.conwaygreene.com/nmsu/lpext.dll?f=templates&fn=main-h.htm&2.0]
FAQ sheet about Federal garnishment rules[http://www.dol.gov/whd/regs/compliance/whdfs30.pdf]
Social security and garnishment[http://www.ssa.gov/deposit/DDFAQ898.htm]