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14.2.1.2 The Meaning of “Subject to Garnishment”

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  3. Chapter 14 Protecting Debtors’ Wages, Benefits, Other Income, and Bank Accounts
  4. 14.2 Protection of Debtors’ Wages
  5. 14.2.1 Federal Wage Garnishment Protections
  6. 14.2.1.2 The Meaning of “Subject to Garnishment”

14.2.1.2 The Meaning of “Subject to Garnishment”

The CCPA protects earnings which are “subject to garnishment.” The statute defines garnishment as any legal or equitable procedure through which the earnings of any individual are required to be withheld for payment of debt.11 The term “subject to garnishment” has been interpreted broadly to relate to any seizure flowing from judicial action,12 including installment payment orders.13 Most wage garnishments are made by court order, with a creditor seeking to satisfy a claim against an employee by reaching an employee’s earnings before they are paid.

The CCPA wage garnishment provisions do not apply to seizures pursuant to a contractual agreement, such as a wage assignment.14 However, the Federal Trade Commission’s Credit Practices Rule broadly prohibits contractual wage assignment provisions unless they are revocable.15 The CCPA garnishment provisions do apply to wage assignments that result from a judicial order.16

An early decision held that setoff against a federal employee’s salary by a federal agency to collect a debt was not restricted by the CCPA.17 However, statutes governing the collection of federal debts through offset and administrative wage garnishment now limit the amount taken to 15% of disposable earnings, a percentage more favorable to the consumer than the CCPA’s limit of 25%.18 A 1977 amendment clarified that the CCPA applies not only to court-ordered garnishments but also when “any State (or officer or agency thereof) . . . make[s], execute[s], or enforce[s] any order or process,”19 so the CCPA restrictions also apply to setoffs by state agencies.20

Some courts have held that the CCPA only protects against garnishment and does not operate as an exemption when the debtor files bankruptcy.21 In practice this position means that a debtor who is owed accrued, unpaid wages at the time of filing bankruptcy cannot use the CCPA to exempt them. Courts have interpreted the wage garnishment statutes in Illinois22 and a few other states23 in the same way. However, most states do treat their wage garnishment protection as an exemption.24 A wildcard exemption may also be available to protect accrued but unpaid wages.25

Footnotes

  • 11 15 U.S.C. § 1672(c).

  • 12 Western v. Hodgson, 494 F.2d 379, 382 (4th Cir. 1974) (CCPA does not apply to wage assignment that is implemented without judicial intervention); Hodgson v. Hamilton Mun. Court, 349 F. Supp. 1125, 1139 (S.D. Ohio 1972) (applies to both “attachment” procedure and “proceedings in aid of execution,” when both are used to require earnings to be withheld); Lough v. Robinson, 675 N.E.2d 1272 (Ohio Ct. App. 1996) (child support order, requiring deduction of support amount from obligor’s wages, was a garnishment within meaning of CCPA and Ohio law); Caulley v. Caulley, 806 S.W.2d 795 (Tex. 1991) (reversing, on state law grounds, lower court’s ruling that federal garnishment protections do not apply to order to turn future wages over to receiver who would pay 90% as alimony arrearages and 10% to former husband).

  • 13 Branham v. Varble, 952 N.E.2d 744 (Ind. 2011) (installment payment order against employed debtor is a garnishment subject to state wage garnishment limits); Igbal v. Mucci, 852 A.2d 195 (N.J. Super. Ct. App. Div. 2004) (order requiring debtor to make installment payments to judgment creditor is same as garnishment and cannot exceed CCPA limits). But see United States v. Jaffe, 417 F.3d 259 (2d Cir. 2005) (criminal restitution order that requires installment payments of $150,000 per year, but does not restrain use of wages or any other specific funds, not covered by CCPA); Allstar Capital, Inc. v. Curry, 900 N.Y.S.2d 852 (N.Y. Sup. Ct. 2010) (debtor—here, a professional basketball player—can be ordered to make installment payments on top of wage garnishment).

  • 14 See, e.g., Western v. Hodgson, 494 F.2d 379 (4th Cir. 1974) (Congress intended “some type of judicial transaction,” not wage assignment that was negotiated between the parties and then implemented without judicial intervention); In re O’Neil, 992 A.2d 672 (N.H. 2010) (husband agreed to wage assignment during divorce proceedings; voluntary assignment not covered by CCPA); Liedka v. Liedka, 423 N.Y.S.2d 788 (N.Y. Fam. Ct. 1979). See also Sears, Roebuck & Co. v. A. T. & G. Co., 239 N.W.2d 614 (Mich. Ct. App. 1976) (federal law does not restrict employer’s deduction from debtor’s earnings to pay debt to employer).

  • 15 16 C.F.R. § 444.2(a)(3). See generally § 14.2.5, infra; National Consumer Law Center, Federal Deception Laws § 2.3 (3d ed. 2017), updated at www.nclc.org/library.

  • 16 Voss Prods., Inc. v. Carlton, 147 F. Supp. 2d 892 (E.D. Tenn. 2001) (order of wage assignment entered in divorce case pursuant to defendant’s agreement was garnishment); Donovan v. Hamilton Cty. Mun. Ct., 580 F. Supp. 554, 556 (S.D. Ohio 1984) (wage assignment for support issued pursuant to a decree of divorce or dissolution was a garnishment under 15 U.S.C. § 1672(c)); Koethe v. Johnson, 328 N.W.2d 293, 297 (Iowa 1982) (court-ordered wage assignment to satisfy child support obligation was “garnishment” and governed by CCPA); Carrel v. Carrel, 791 S.W.2d 831 (Mo. Ct. App. 1990) (involuntary wage assignment ordered by court as part of contempt order in marriage dissolution case is garnishment).

  • 17 Atwater v. Roudebush, 452 F. Supp. 622 (N.D. Ill. 1976).

  • 18 See § 10.2.7, supra; § 14.2.2.1, infra.

  • 19 15 U.S.C. § 1673(c).

  • 20 Shine v. Iowa Dep’t of Human Servs., 592 N.W.2d 684 (Iowa 1999).

  • 21 See, e.g., Smith v. Frazier, 421 B.R. 513 (S.D. Ill. 2009) (CCPA’s garnishment cap is not an exemption and cannot be used in bankruptcy); In re Riendeau, 293 B.R. 832 (D. Vt. 2002), aff’d on other grounds, 336 F.3d 78 (2d Cir. 2003); In re Horton, 2011 WL 832946 (Bankr. E.D. Ky. Mar. 4, 2011); In re Bloomstein, 2010 WL 4607525 (Bankr. D. Mass. Nov. 5, 2010); In re Reinhart, 291 P.3d 228 (Utah 2012). See also In re Brissette, 561 F.2d 779, 786 (9th Cir. 1977) (contrasting CCPA with California wage garnishment statute);

  • 22 In re Kapusta, 2011 WL 2173675 (C.D. Ill. June 2, 2011) (noting that Illinois courts are divided on question of whether Illinois Wage Deduction Act, which does not protect wages after payment to debtor, is an exemption that may be used in bankruptcy; concluding that it is not); In re Thum, 329 B.R. 848 (C.D. Ill. 2005); In re Jokiel, 2012 WL 33246 (Bankr. N.D. Ill. Jan. 5, 2012) (Illinois Wage Deduction Act does not create an exemption usable in bankruptcy); In re Radzilowsky, 448 B.R. 767 (Bankr. N.D. Ill. 2011) (Illinois Wage Deduction Act, which protects wages only before payment to debtor, is not an exemption that can be used in bankruptcy); In re Lane, 2010 WL 148634 (Bankr. C.D. Ill. Jan. 12, 2010) (Illinois garnishment cap not an exemption; wages earned but unpaid on petition date not exempt but may be covered by wildcard exemption); In re Koeneman, 410 B.R. 820 (Bankr. C.D. Ill. 2009).

  • 23 In re Sinclair, 417 F.3d 527 (5th Cir. 2005) (Louisiana garnishment limitation not an exemption); In re Lawrence, 219 B.R. 786 (E.D. Tenn. 1998); In re Slane, 537 B.R. 864 (Bankr. N.D. Ohio 2015) (Ohio’s garnishment limitation is not an exemption that can be claimed in bankruptcy); In re Mordkin, 452 B.R. 311 (Bankr. D.D.C. 2011) (District of Columbia wage garnishment limit, which does not protect wages after payment to debtor, is not an exemption that can be claimed in bankruptcy); In re Parsons, 437 B.R. 854 (Bankr. E.D. Mo. 2010); In re Reinhart, 291 P.3d 228 (Utah 2012) (Utah statute limiting the amount of garnishment is not an exemption that can be used in bankruptcy). Cf. In re Sikes, 2004 WL 2028021 (Bankr. W.D. Ky. Sept. 8, 2004) (stating that Kentucky statute protecting wages does not apply in bankruptcy; statement is dicta because issue was protection of tax refund, not wages).

  • 24 In re Robinson, 241 B.R. 447 (9th Cir. 1999) (interpreting Oregon’s protection of wages as an exemption applicable in bankruptcy); In re Brissette, 561 F.2d 779, 786 (9th Cir. 1977) (California wage garnishment protection); In re Irish, 311 B.R. 63 (B.A.P. 8th Cir. 2004) (federal garnishment limits operate as a bankruptcy exemption because they are incorporated into Iowa exemption law; debtor can stack this exemption with another exemption for $1000 in wages or tax refunds); In re Foster, 556 B.R. 233, 248 (Bankr. E.D. Va. 2016) (Virginia wage garnishment provisions apply in bankruptcy and allow debtor to exempt accrued but unpaid earnings); In re Bell, 526 B.R. 288 (Bankr. N.D. Ind. 2015) (Indiana garnishment limitation is an exemption that protects wages in bankruptcy); In re Hoetmer, 2011 WL 2893628 (Bankr. S.D. Ind. July 14, 2011); In re Haraughty, 403 B.R. 607 (Bankr. S.D. Ind. 2009) (Indiana garnishment limit, Ind. Code § 24-4.5-5-105, is an exemption that may be used in bankruptcy; earned but unpaid wages exempt up to statutory limit); In re Cole, 2009 WL 1616777 (Bankr. S.D. Ind. June 8, 2009) (same); In re Lantz, 2009 WL 113729 (Bankr. E.D. Cal. Jan. 13, 2009) (California bankruptcy exemption applies to earned but unpaid wages); In re Mayer, 388 B.R. 869, 872 n.1 (Bankr. N.D. Ill. 2008) (Illinois restriction on wage garnishment is an exemption that applies in bankruptcy); In re Jones, 318 B.R. 841 (Bankr. S.D. Ohio 2005) (federal garnishment limits operate as bankruptcy exemption because they are incorporated into Ohio’s exemption statute). See also In re Randall, 2011 WL 5417092 (Bankr. N.D. Iowa 2011) (wages garnished prepetition and paid into court but not yet condemned—that is, ordered paid over to creditor—were exempt pursuant to Iowa’s accrued wages exemption). See generally §§ 14.2.3.1–14.2.3.3, Appx. H, infra.

  • 25 See §§ 13.3.6, 13.3.7, supra.