Although most states allow garnishment of wages for final civil judgments of many types, North Carolina has been cautious (some would “stingy,” while others would say “prudent”) in limiting garnishment of disposable income wages for limited purposes such as taxes, student loans, child support, alimony and payment of ambulance services in certain counties. Recently however, the North Carolina Legislature has moved more aggressively to expand this remedy to include final judgments involving any “monetary damages.” But not without a number of limitations, exceptions and procedural hurdles for creditors. The current status of the Bill is referral to the Senate’s Committee on Rules and Regulations (as March 30, 2015).
The current “state of disunion” in the US by state looks like this:
1. Federal Law allows judgment creditors to seize up to 25% of a debtor’s wages for most consumer debts. However, the law also allows states to limit seizures to a smaller percentage.
2. The majority of states (42) follow the federal law or have very limited protection against garnishment of worker’s paycheck.
3. Two states protect up to 90% of wages from seizure.
4. Four states – like North Carolina – ban garnishment as a remedy for most debts. North Carolina will enforce other state’s garnishment orders if properly domesticated.
Scope of the Bill
Senate Bill 632 creates a right of garnishment for all “disposable earnings” as “that amount owed to the judgment debtor by his or her employer less any amounts deducted by the employer for federal and State income taxes, the judgment debtor’s share of State unemployment insurance, and for social security. ” (N.C. Senate Bill proposed Section 1C-1501(b)).
The Bill also sets a cap of maximum amounts from each weekly paycheck to be seized as the lesser of either the federal amount (25%) or the amount by which the judgment debtor’s disposable earnings exceed 30 times the federal minimum wage – currently $7.25/hour. Thus if a debtor works 40 hours a week at minimum wage the maximum amount that a creditor can recover would be lessor $8,700 or 25% of disposable earnings per weekly net pay.
Beyond the issuance of the writ of garnishment by the clerk upon the creditor’s request, the proposed statute also requires:
1. $25 fee;
2. No writ can be issued before 30 days after final judgment is entered;
3. The writ also must advise the debtor that he or she has the right to file a written objection to the writ; and
4. The employer may deduct fee of $10 per wage check and has 15 days to comply with the writ.
Limitations and Exemptions
Not to move too quickly to change existing law, the Bill contains numerous and significant restrictions beyond the basic formula for recovery, including:
1. The priority for these garnishments is last behind those for child support, government and other writs served on the employer prior to the writ in question;
2. Exemptions for all government and employer benefits;
3. Right of debtor to file a written objection to the writ; and
4. Affirmative duty on creditor to file notice of satisfaction and penalties for improper garnishment.
Pros and Cons
Beyond bringing North Carolina into the company of the majority of states and other jurisdictions that allow for reasonable recovery of disposable earnings, this Bill also builds in significant due process for debtors and employers. Will it be put before the full legislature and signed by our Governor? In this author’s view, perhaps politics is the true decision maker, but on balance this proposed law is reasonable for creditors and debtors and employers. In addition, it prevents judgment debtors from ducking execution and recovery subject to other state, federal and bankruptcy laws. The procedural constraints and guidelines are clear and give a good road map for how to deal with these situations. Clarity is important. What the NC State Government decides to do may be a whole other story.