Do your supervisors know what to do if an employee subject to wage garnishment declares bankruptcy? Do they know how to prioritize multiple withholding orders? Below is some information to convey to your supervisors.
For a Limited Time receive a
FREE Compensation Market Analysis Report! Find out how much you should be paying to attract and retain the best applicants and employees, with
customized information for your industry, location, and job.
Get Your Report Now!What if an employee subject to garnishment or family support withholding declares bankruptcy? This has a significant effect on wage garnishment but not on family support.
- Once an employee files for bankruptcy, garnishment for consumer, tax, or administrative debts are prohibited.
- Family support payments, however, are exempt and must still be paid.
- The prohibition against garnishment continues until the bankruptcy action has been settled. At that time, consumer debt may be erased, but you must resume garnishment payments for taxes and usually also for federally guaranteed student loans.
When some employees get into financial trouble, they may have a lot of creditors going after them. This could mean multiple withholding orders. When that's the case, these orders must be honored according to a priority system set out by law.
- Family support orders always have top priority and must be paid before any garnishment order.
- Next come federal tax liens.
- Then comes garnishment for federally guaranteed student loans.
- After that come administrative orders for any other debt owed to the U.S. government.
- Last come consumer credit garnishment orders.
- Despite these priorities, however, if you are already withholding payments for a garnishment order, the law says you must honor this order in full before turning to the next garnishment order on the list. This first-come, first-served system does not apply to family support, which always comes first, no matter what.
- Generally when an employer receives multiple garnishment orders for consumer debt, creditors are paid one at a time in the order in which the documents were received. Again, such cases can be complicated, and the advice of an attorney is often required.
The above information comes from BLR's presentation "Wage Garnishment and Family Support Withholding: What Supervisors Need to Know." For more information on all the training courses BLR has to offer, go to our Employee and Manager Training page.