I am being sued for defaulting on an auto loan

Wage garnishments are payments withheld from an employee's earnings to repay a debt. Creditors generally must go to court and receive a court order to garnish your wages, although the IRS and other state collection agencies may have the right to levy your wages for unpaid taxes through administrative garnishment procedures.

Recently on our forum a user asked the following question, "I am being sued for defaulting on an auto loan in 2011. I already have about 22% of my gross pay being garnished for alimony/child support interest arrears. Can I be garnished for the auto loan as well?"

Federal Law and wage garnishments

Wages garnishments are controlled at the state and federal level. First, let's discuss federal regulations. Title III of the Consumer Credit Protection Act limits the amount of an employee's earnings that may be garnished each pay period. It applies in all 50 states, including District of Columbia, and all U.S. territories and possessions. It is administered by the Wage and Hour Division of the U.S. Department of Labor's Employment Standards Administration.

Federal law restrictions for wage garnishments

Assuming you live in a state which allows wage garnishments for car debts (exceptions are discussed below), if your wages are already garnished for child support you may also have them garnished for car loan debts, but there are limits to the amount the employer can deduct.

For instance, garnishments are based on your disposable earnings (the amount after deductions have been made for federal, state, and local taxes, the employee's share of State Unemployment Insurance and Social Security). If the deduction is not required by law, (health insurance or charitable donations) the amount is not subtracted from gross earnings to calculate disposable income.

Under the law there is a maximum which can be deducted each pay period from your disposable income. According to the Department of Labor, "For ordinary garnishments (i.e., those not for support, bankruptcy, or any state or federal tax), the weekly amount may not exceed the lesser of two figures: 25 percent of the employee's disposable earnings, or the amount by which an employee's disposable earnings are greater than 30 times the federal minimum wage (currently $7.25 an hour)."

The following example is also provided by the Department of Labor:

For example if your disposable earnings were $217.50 ($7.25× 30) or less, there can be no garnishment. If disposable earnings are more than $217.50 but less than $290.00 ($7.25× 40), the amount above $217.50 can be garnished. A maximum of 25 percent can be garnished, if disposable income earnings are $290.00 or more.

States which do not allow wage garnishments

North and South Carolina, Pennsylvania and Texas do not allow wage garnishments except for taxes, child support, Federal student loans, court-ordered fines or restitution for debt incurred by a criminal act. North Carolina has some exceptions if the court order comes from another state, but it cannot violate the North Carolina Wage and Hour Act by obeying that order. So most likely if you live in one of those states your wages will not be allowed to be garnished for a car loan.

If you do not live in one of those states, however, you may have an additional garnishment but only to the maximum allowed under federal law.