We Americans love our credit cards. So much so that the total credit card debt across the entire U.S. hit a record $1.2 trillion in the fourth quarter of 2024. During the first quarter of this year, the average outstanding credit card balance among American consumers was $7,321. That leads to the main point of this post: wage garnishment as a means of collecting credit card debt.
In short, wage garnishment is an option. It is not the most popular option among credit card companies because of what it entails. But if all other means of collecting outstanding debt were exhausted, a credit card company could turn to wage garnishment.
What Wage Garnishment Is
Wage garnishment is a court-approved process of taking a certain amount of money out of a debtor’s paycheck in order to pay an outstanding debt. A court would generate a writ of garnishment that is served to the debtor’s employer by the local sheriff. Upon receipt of the order, the employer is compelled to withhold a certain amount of money and forward it to the creditor.
Courts have long relied on wage garnishment to extract unpaid child support and maintenance payments from divorced fathers. It has been a tool for collecting unpaid taxes and civil fines for as long as I can remember. And yes, wage garnishment is available to credit card companies as well.
A Lawsuit Comes First
Even though garnishment is an option, it cannot be utilized arbitrarily and without court authority. So how does it work? Salt Lake City’s Judgment Collectors explains that a creditor must file and win a civil lawsuit before garnishment can take place.
Judgment Collectors is a collection agency that specializes in civil judgments. Imagine one of their clients – perhaps a credit card company – choosing to sue a consumer for not paying his bill. Also assume that the client wins the case. Now the client’s attorney goes back to court to ask for a writ of garnishment.
Had the credit card company lost its case, a writ of garnishment would have been off the table. The credit card company would have to go back to standard means of collection that are available without a court order.
Why It’s Not So Attractive
Wage garnishment is not all that attractive as a means of collecting credit card debt. Why? Because its benefits are limited.
First of all, garnishment isn’t allowed in every state. Although their numbers are few, there are some states that do not permit wage or bank account garnishment. So it is completely off the table in those states. Meanwhile, the amount that can be garnished is limited even in the states that allow the practice.
Let us say a state allows a judgment creditor to garnish up to 25% of a debtor’s disposable income. Not total income, but disposable income – income the debtor does not need to meet basic expenses. Imagine a debtor with a disposable income of just $100 per week. The most a creditor could take is $25.
On a $7,000 debt, it is going to take a long time for the credit card company to recover what it is owed. In the meantime, what stops the debtor from racking up debts on other credit cards?
It’s a Tricky Situation
Collecting from card holders who don’t pay their bills is a tricky situation for credit card companies. Because credit card debt is unsecured, there is no easy way to get paid when dead-beats decide not to pay their balances. Garnishment is an option, although not one used very frequently.