Asset Protection for Wages

One of your greatest assets is the ability to produce an income–the ability to earn money by working.  The judicial system recognizes that our capacity to earn is quite valuable.  It also recognizes that most people have to work just to survive.  In other words, our earning capacity is a valuable asset, and people are generally motivated to make use of that asset to the fullest extent possible.  After all, our society is one that generally encourages growth in income.  Having more is generally viewed as better than having less.

What is Garnishment?

Garnishment (or the writ of garnishment)  is a judicial and statutory remedy that allows creditors to collect money “off the top” from a debtor’s wages and other sources of income.  The ability to garnish wages and other sources of income (e.g. distributions from a trust) is a powerful creditor tool, but it’s not unlimited.  The federal government has imposed limitations on the amount that creditors can obtain from debtors via garnishment.  In essence, those limitations provide a limited form of asset protection for your monthly income.

Federal Asset Protection for Wages

The federal Consumer Protection Credit Act specifies that creditors can garnish only the lesser of 25% of an individuals “disposable income,” as defined by the law, or earnings in excess of thirty times the federal minimum wage.  The Consumer Credit Protection Act sets the floor in terms of defining the maximum amounts recoverable by creditors, since it allows states to impose even stricter requirements on the use of garnishment.  Consider the following:

• Texas Asset Protection laws don’t allow for garnishment at all, in any form.
• Florida Asset Protection laws provide special rules regarding garnishing a person who is the head of a household.  Specifically, there are strict requirements for a creditor to file certain documents personally (i.e. not through an attorney) or else Florida courts will not permit garnishment.

Exceptions to the Limitations of Garnishment

In some specifically defined instances, courts are permitted to go beyond the limitations imposed by the Consumer Protection Credit Act, but those exceptions are usually limited to claims for child support or spousal support.

Don’t Plan on the Limited Reach of Garnishment

It’s highly unlikely that any asset protection attorney worth his or her salt would form an asset protection strategy around the inherent weaknesses found in a creditor’s ability to garnish wages and income.  It would simply be foolish to pursue such a strategy.  Nonetheless, it is important to understand the law and how it might affect you in the event that a creditor seeks to intercept your income or wages.  Knowing the law allows savvy asset protection lawyers to craft trusts so that income may not be subject to garnishment.  If you have questions about garnishment laws in your state, or if you would like to learn more about asset protection planning, please call Lodmell & Lodmell today.