Proposed North Carolina Garnishment Law Could Ruin Finances, Increase Bankruptcy Filings

North Carolina lawmakers proposed consumer garnishment

Image Source: Flickr User Gerry Dincher

One of the most powerful tools in a debt collector's or creditor's arsenal is the ability to garnish wages. In North Carolina, historically, wage garnishment has been barred to most creditors for nearly 150 years. As it stands, if you live in NC, your wages can be attached only for past due income taxes, child support and child support in arrears, and defaulted student loans. But now, state Senator Andrew Brock has introduced a law that would strip valuable protections from cash-strapped consumers in North Carolina that could be devastating.

Proposed North Carolina Senate Bill S632 would allow any creditor that obtained a judgment against you to request that your employer hold back wages to cover that debt. The proposed legislation reads: “A final judgment awarding monetary damages against an individual may be enforced by a writ of garnishment directing the employer of the judgment debtor to pay that portion of the disposable earnings owed to the judgment debtor.”

The legislation goes on to define “disposable income” as your wages less your income tax withholdings, unemployment insurance withholding and Social Security/Medicare withholding. Essentially, your disposable income would be the same as your net income. The law would allow the creditor to garnish the lesser of:

• 25% of your disposable income
• The amount by which your pay exceeds 30 times the federal minimum wage ($7.25)

So if you earn $20 an hour and work full time, your take home pay will be roughly $650. The first calculation would deduct $162.50 from your check. The second calculation would be $432.50 ($650 – (30 x $7.25)). The lower amount of $162.50 would be subject to garnishment. Losing one-fourth of your take-home pay would likely be catastrophic.

North Carolina's ban on garnishments for most creditors helps ensure families don't have their income stripped away so that they can't cover basic living expenses. In the scenario above, a consumer earning $41,600 a year would lose $705 a month. That's not a sustainable scenario for most households. Currently, North Carolina, Pennsylvania, South Carolina and Texas do not allow garnishments for most creditors. If State Senator Brock's plan is approved, NC consumers will lose this valuable protection.

Without this in place, the only way to stop a garnishment is to pay the account in full or to file bankruptcy. A Chapter 7 bankruptcy can stop garnishments and can trigger a refund of amounts taken for the past 60 days. Of course, if you can afford to pay your bills you should, but for those whose debts are unmanageable, a garnishment can be financially disastrous.

Currently, North Carolina has one of the lowest levels of bankruptcy filings in the Southeast region. Tennessee consumers file bankruptcy at a rate 350% of those in NC and Georgia, and Alabama consumers file at a rate 300% of those in our state. If this law goes into effect, many more consumers will likely need to turn to bankruptcy to protect their much-needed earnings. With the state economy finally recovering and consumers able to recover their financial footing, a law like this could backtrack all of that progress.

If you want to weigh in on the proposed law S632 on garnishment, contact your state representative.

And if you have debts that you simply can't pay, you don't have to live in fear of debt collectors harassing you, struggling to get by paycheck to paycheck and stressed about your financial future. Let the North Carolina bankruptcy experts at the law offices of John T Orcutt help you. Call +1-833-627-0115 for a free consultation at one of our offices in Raleigh, Durham, Greensboro, Fayetteville, Wilson or Garner.