What to do and NOT do when your wages have been garnished
A prospective client came in to see me today. He had taken out a payday loan approximately four years ago (FIRST RULE: Never take out a payday loan. Those guys charge more interest than a mob connected loan shark.) Anyway, he couldn’t pay them back, ignored the calls, ignored the law suit, and the next thing you know there is a judgment against him. Unfortunately, he ignored that too and the judgment creditor garnished his wages. Here in California the judgment creditor can garnish 25% of your net wages. This amounted to over $225 dollars per month which the debtor couldn’t afford so he filed a hardship and got his garnishment reduced to $50.00 per month. The original judgment was for approximately $3,400. He made payments for three years totaling $4900, and still owed $2200 to the judgment creditor. How could this be? It happened because the prospective client was a victim of ignorance. He didn’t know that in California judgments accrue interest at a rate of 10% per year. He also didn’t know that the Sheriff in county where the garnishment was served takes a $12 fee to process each and every payment that was made. Our poor debtor thought that his $50.00 payments were going to reduce the principal owed on the debt. In reality, they were going to administrative fees and interest on the judgment and nothing was going to reduce the principal. The upshot is that the debtor is still on the hook for almost as much as the original payday loan was for. Don’t let this happen to you!
Here are the lessons to be learned from this unfortunate story;
1) NEVER use a payday loan service. If you are at that point ion your financial situation, it is time to talk to a bankruptcy lawyer.
2) NEVER ignore a summons on a law suit. Once you have been served, you have thirty days (here in California anyway) to file an answer. If you have been served, talk to an attorney. At the very least go to the self help desk which you can find in many court houses. You may have a defense or you may be able to file bankruptcy and make the law suit go away.
3) If your wages are garnished, see a bankruptcy lawyer. Bankruptcy can stop the garnishment! If for some reason bankruptcy is not an option maybe the lawyer can negotiate a favorable settlement for you which can stop the garnishment in exchange for a lump sum cash settlement. Creditors will frequently work with the lawyer when they would other wise blow off the judgment debtor.
4) KNOW THE RULES. If you don’t know them, talk to somebody who does, and do it sooner rather than later.