Can Debt Consolidation Stop Wage Garnishment?

Wage garnishment is a legal process where some of your wages are diverted to pay off a debt. That can be a really difficult situation to be in. One option to get out of wage garnishment is getting a debt consolidation loan. 

But for most, it’s not going to be available due to its credit and income requirements. However, there are other ways to stop wage garnishment, including negotiating with your creditors or entering into a debt repayment agreement.

What is wage garnishment and how does it work?

Wage garnishment is a legal process wherein a person’s earned wages are withheld by an employer, per a court order, and sent directly to a creditor. 

Wage garnishment can happen when someone falls behind on payments and then has a debt, such as a credit card or tax bill, that’s in collections. Before wage garnishment can occur, there is a distinct process that begins once you fall behind on your payments.

“Wage garnishment happens when you get sued by a creditor, you lose the lawsuit, and you get a judgment against you. To be sued, your debt would need to be delinquent,” said Leslie Tayne, a financial attorney based in New York. “Some states have limitations on wage garnishment.”

There’s also a federal limit to how much of your income can be garnished. Due to the Consumer Credit Protection Act, most wage garnishment is limited to the lesser of either 25% of your disposable income or “the amount by which an employee’s disposable earnings are greater than 30 times the federal minimum wage.” 

However, there is an exception to these limits for certain types of debt, including some bankruptcy court orders, as well as federal or state tax debts.Either way, having a portion of your income taken away can have tremendous consequences for your finances. 

For example, if you’re already behind on multiple payments, it can cause your debt to snowball, and even for more debts to go to collections and potentially have legal action (such as wage garnishment) taken. 

So, stopping wage garnishment as soon as possible is essential. Fortunately, there are actions you can take, such as debt consolidation.

Can debt consolidation stop wage garnishment?

Yes, in some cases, a debt consolidation loan can stop wage garnishment. A debt consolidation loan is a type of personal loan that combines existing debts into a new loan with its own terms. 

Your loan funds are then used to pay off debts, and you only have to make one payment to your new lender. These products are often used to get better terms, such as lower interest rates or more affordable monthly payments.

It’s also vital to make sure that the funds are disbursed in a timely manner. 

That’s because many times wage garnishment comes with an interest rate (often ranging from 2% to 18%) — so waiting to apply, or to get the funds, can mean your borrowed amount isn’t enough to cover the full costs. 

That means you could still experience wage garnishment if there’s a leftover balance. So it can help to look for lenders that have quick loan approval and funding times.

However, there is a significant catch here since it’s difficult to qualify for these loans once you have a debt that’s resulted in wage garnishment.

Related: How Long Does It Take to Get a Personal Loan?

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How to qualify for a debt consolidation loan if your wages are being garnished

Debt consolidation loans require applicants to meet certain requirements, such as having a high enough credit score and income, in order to get approved.

The chances that someone who is experiencing wage garnishment can get a debt consolidation loan or any personal loan are “pretty slim, especially without a cosigner or a great credit score,” said Tayne, who’s dealt in consumer and business debt relief and debt settlement for over 20 years. 

As she added, having a wage garnishment on your pay stub or credit report is a significant mark against you in lenders’ eyes.

If a debt consolidation loan is something you’re interested in exploring, however, here are the steps you’d need to take to get one:

• Gather information: You should contact your creditor or debt collection company to find out how to successfully complete the process of paying off your debt, as well as any wage-garnishment-related costs, such as interest or fees and the total amount needed to pay off your debt.
• Check your credit: You need to know where you stand in order to see if qualifying is possible for you. In general, lenders want to see a score of 670 or higher, but some accept those with only “fair” credit (usually considered to be a score between 640 and 699).
• Protect your score: Once you check your score, it’s important to do everything you can to preserve your score before you apply. That means doing things such as keeping up with any other payments and keeping old credit accounts open.
• Shop around: Your options for lenders may be limited based on your credit, so it’s key to shop around to find the one that offers the best terms for you. If available, always do prequalification — which is a soft credit pull that shows if you’re likely to qualify, and what the loan terms could be. Remember that prequalification is not an offer of credit, and your final rate could be higher.
• Apply for the loan: Once you find the best lender for you, you’ll need to apply with that company. This typically means providing personal information, such as your address, income, and Social Security number. A hard credit check will be performed once you formally apply, which can lower your credit score temporarily.
• Use the loan to pay off your debts: If you are approved, the lender will disburse the funds, typically to your bank account. From there, you can use the funds to pay off your various debts.

Because wage garnishment is a legal action, it’s vital to seek professional advice before going with a debt consolidation loan. 

For example, if you have multiple wage garnishments, getting rid of one may not help much, Tayne noted. A debt lawyer or financial professional can help point you in the right direction.

Learn More: How To Get a Debt Consolidation Loan

Other ways to stop wage garnishment

• Negotiate with creditors: It can be difficult to successfully negotiate for a lowered debt amount once you’ve reached the point of having wages garnished. And, according to Tayne, it will typically require you to make a lump-sum payment to pull it off. However, it may still be worth contacting your creditors to see if there is any possibility, especially if you can swing a single, large payment.
• Seek legal assistance: An attorney who is familiar with the laws surrounding debt and wage garnishment may be able to help stop it from happening. However, there will be a cost here. Still, if they are able to find a reason to overturn the ruling for wage garnishment, it can pay off.
• Enter a debt repayment plan: A debt repayment plan can also help you get out of debt and wage garnishment, assuming your creditor or debt collection agency approves. Like a debt consolidation loan, it would give you a structured path out of debt. But you may not be able to have as much control over the terms of repayment.
• File a claim of exemption: If you qualify for an exemption, you may be able to stop wage garnishment. However, this can be difficult, and exemptions can be different from state to state, so you may want to consult with a lawyer first.
• Consider a home equity loan or HELOC: If you own your home, a home equity loan or home equity line of credit (HELOC) are other options to access funds which may be used to pay off debts. It requires your home to have built-up equity from which to borrow against, and for you to make monthly payments (including interest charges) to repay that loan. A home equity loan is disbursed as a lump sum of cash, while a HELOC can be drawn from continuously until the end of the draw period.
• File for bankruptcy: If all else fails, filing for bankruptcy can at least temporarily stop wage garnishments, but it should always be a last resort. If you’re able to successfully file, it would also wipe out all or most of your existing debts (depending on the type of debt). That could leave you free of wage garnishment. However, there can be exceptions to this rule, so it’s best to consult with an attorney first. Keep in mind that your credit score could drop as much as 130-200 points (depending on your score) after you file for bankruptcy.

Compare: Debt Consolidation vs. Bankruptcy

Should I get a debt consolidation loan to stop wage garnishment?

If you can qualify for one, a debt consolidation loan can be a viable option to stop wage garnishment, since it would provide a lump sum of cash that you could use to pay off your debt. 

It would also give you the opportunity to structure your payments in a way that might be easier to handle, and your paychecks would increase back to the levels you’re accustomed to. 

But, again, due to the credit and income requirements, a loan can be difficult to access. So other options, such as seeking help from a credit counselor, could be a better option to stop wage garnishment. 

You can find a list of credit counseling agencies from the U.S. Department of Justice.

Check Out: Pros and Cons of Debt Consolidation

Read More:

• Debt Settlement Pros and Cons
• Debt Consolidation vs. Balance Transfer
• How To Use a Personal Loan To Pay Off Debt
• Types of Debt Consolidation Loans
• How Much of a Personal Loan Can I Get?
• How Debt Consolidation Helps Your Credit
• How To Handle Credit Card Debt If You're Unemployed
• How To Get Out of Debt With Bad Credit