Sometimes, debtors don’t pay, even when a creditor has a judgment—a court determination—ordering them to pay. However, when that happens, creditors don’t need to simply throw up their hands and walk away from their lawful debts. Instead, the courts provide several remedies or mechanisms by which a creditor can collect from even an unwilling debtor. One of the more commonly used remedies is garnishment: when there is a third party (known as a garnishee) which has some of the debtor’s money in its possession, it can be ordered to pay that money to the creditor, to satisfy the judgment.
(Note: the IRS and state tax authorities may not be required to go to court first to obtain a judgment and validate the debt; but other creditors have to.)
Any money in the hands of another, or any source of income, can be garnished. When the garnishee is the debtor’s employer and the money in its possession is the debtor’s salary or wages, the remedy is called wage garnishment. Garnishment is available as a remedy for any unpaid debt—not merely those from consumer debts or promissory notes, but also ones arising from breach of contract, tort lawsuits (e.g. car accidents, professional misconduct), taxes, and domestic support obligations.
Not all income is equally subject to garnishment. Several types are protected, or exempt, from being garnished. For example, federal law, allows Social Security to be garnished only for child support, alimony, federal taxes, and a very few other debts owed to the federal government.
States can establish additional garnishment exemptions. New Hampshire, in keeping with its ethos of rugged individualism with a strain of “as ye sow, so shall reap” or “you’ve made your bed, now lie in it,” has fewer categories of protected or exempt non-wage, non-salary income than most other states. That’s bad for the debtor, though as you’ll see in a following section, there is a major kicker in New Hampshire law that’s very good for the debtor (i.e. bad for the creditor).
There’s also a limitation on how federal pensions are protected. They are only protected until they are in the debtor’s possession—i.e. until he or she has been paid. However, once they are in his or bank account, a creditor, armed with the proper order, could take the money out of the account.
Furthermore, the exemptions or protections referred to above are not always absolute or complete. Some of them provide protections from many creditors (such stores, contractors, professional services providers, credit card issuers, and banks or other lenders) but not from garnishment for child support. For example, unemployment compensation may be garnished for child support.
All states are subject to federal law. Federal law sets a floor, or minimum threshold, of protection for income from garnishment. A state may not allow more income to be garnished than can be garnished under federal law—though it can make less income subject to garnishment (i.e. protect a larger portion of the debtor’s income).
Under federal law, the lesser of the following may be garnished:
At first glance, New Hampshire would seem to offer very little protection from garnishment: under New Hampshire law, any weekly earnings greater than 50 times the federal minimum wage can be garnished. (However, remember that federal law establishes that no more than 25% of disposable income is subject to garnishment.)
HOWEVER—and that’s a big “however”—New Hampshire does not allow garnishment of wages earned after the creditor gets an order allowing garnishment. In other words, wages must have been earned, but not yet paid, at the time of the garnishment. New Hampshire therefore does not allow a continuing writ or order of garnishment to be put in place like other states do.
In other states, once a writ is obtained by the creditor, every two weeks or so, part of the debtor’s earnings are diverted for creditor’s benefit. This will generally go on until the debt is paid and the judgment satisfied.
Not so in New Hampshire. In that state, in practice, a creditor can typically garnish only two weeks (for the majority of people, paid biweekly or semimonthly) of earnings. To garnish more or on a continuing basis, the creditor needs to be keep going back to court, which is certainly possible, but a major inconvenience (and very costly, if a lawyer is doing it for creditor). This acts as a major disincentive to wage garnishment in New Hampshire.
Since garnishment is a legal proceeding which is predicated on a prior legal proceeding, there are two statutes of limitation (time to bring a legal action) governing garnishment.
The first will be the statute of limitations for the debt the garnishment is based on. The limitations period varies by type of debt or cause of action, but for common consumer debts, New Hampshire’s limitation periods are:
In other words, for most consumer causes of action, the creditor has 3 years to sue. If the creditor does not sue in time, they will not be able to garnish later.
Three years is on the short side for debts like these. However, once the creditor has sued and obtained its judgment, it has has 20 years—two decades!—to seek garnishment or otherwise enforce the action. That gives the creditor the luxury of waiting a L-O-N-G time, until a presently down-on-his-or-her-luck debtor is earning more money, before garnishing income. Of course, since under present New Hampshire law, all the creditor can get are wages earned but not-yet paid at the time the creditor files for garnishment, maybe what the creditor is really waiting for is for the law to change.
Except for federal and state tax authorities, a creditor needs to sue first to obtain a legal judgment that the debtor owes it money. This means that by the time the creditor attempts garnishment, the issue of whether or not the debtor owes it money should have been settled. That streamlines garnishment, since the process focuses on enforcing a judgment for money, not on determining whether the debtor should pay.
The judgment will form the basis for the garnishment. Armed with its garnishment, the creditor requests garnishment on the basis that (1) the debtor owes it money; (2) the debtor isn’t paying; and therefore (3) garnishment is necessary to secure payment and satisfy the judgment.
The creditor also has to identify a garnishee (or more than one garnishee) which holds money for the debtor. In wage garnishment, that garnishee would be the debtor’s employer and the money is the debtor’s wages. There is a process by which the creditor’s claim that the garnishee has money belonging to the debtor is verified and validated; assuming that it is, an order for garnishment (often called a writ of garnishment) will issue. The garnishee’s only right to challenge the garnishment is on the “facts”—whether and how much it owes the debtor, for example. It is not allowed to challenge the creditor’s fundamental right to seek garnishment to satisfy an unpaid judgment. More on Stopping Wage Garnishment in New Hampshire.
Even without re-litigating or re-arguing whether the debtor owes the creditor money (remember: this was already litigated during the earlier lawsuit, when the creditor obtained its judgment), there are ways to challenge garnishment. These ways almost always require the assistance of an attorney, since they focus on attacking some element of legal process—timing, paperwork, etc.—relating to the garnishment or possible to the underlying judgment.
It is also a good idea for the debtor and his or her attorney to examine the debtor’s sources of income, to see whether any are exempt from garnishment and to what extent. The more income that is exempt, the less that could be garnished.
However, given again how little creditors can actually recover under wage garnishment, it’s questionable whether wage garnishment specifically is worth fighting. Other mechanisms the creditor can use—such as attaching or executing on property, or putting a lien on real estate—are well worth challenging or opposing; however, if the all the creditor is trying to do is to use New Hampshire’s wage garnishment process, what the creditor could get may be less than the cost of trying to fight the garnishment.
For more information:
New Hampshire Statutes[http://www.gencourt.state.nh.us/rsa/html/nhtoc.htm]
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]