What is the difference between an income deduction order and wage garnishment?

Question

What is the difference between an income deduction order and wage garnishment?

Answer

An income deduction order is harsher compared to a wage garnishment order. In wage garnishment, only a portion of the debtor's net disposable income is going to be paid to creditors subject to exemptions and federal law guidelines.  The garnishment is not to be more than 25% of net disposable income or 30% of what's above the minimum salary, whichever is lower. This is the biggest difference between an income deduction and wage garnishment. Also, exemptions can be applied to garnishment, like child support and benefits from social security for disability. Some states even allow exemptions for dependents. It is possible to keep the entire wage free from garnishment if it can be proven that it qualifies under many exemptions.

Meanwhile, an income deduction is given in a chapter 13 proceeding. If a debtor files for chapter 13, there should be a plan on how creditors are to be paid. It is a must in a chapter 13 proceeding that ALL of the debtor's net monthly disposable income are to be paid to creditors except when unsecured creditors have been 100% of what they are owed. But since that is not always possible, the unpaid creditors will get payment through income deduction. The court will issue an income deduction order to the debtor's employer so that his wages can be used to finance the chapter 13 plan payments. Net disposable income does not include child support payment, disability benefits, social security income, foster care, repayment of pension loans, and domestic support obligations.

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