A payday lender can garnish your wages but only in very specific circumstances. For example, if your payday lender has taken you to court and has a court order that allows them to garnish your wages. Wage garnishment will never be the first step in a lender collecting the money you owe.
What is a wage garnishment?
Wage garnishment is when your employer holds back a legally required portion of your wages for your debts. This means you never see that chunk of your paycheck, it goes straight to paying off your debts. Bank garnishment occurs when your bank or credit union is served with a garnishment order. Depending on which state you live in, the rules and procedures may vary slightly. Each state will have different procedures and exemptions from garnishment.
Will I be warned about a payday lender taking my wages?
Yes, wage garnishment will never be the first option when you fall behind on payments. Wage garnishment cannot happen without a court order, so you should never be caught unawares. When you first start defaulting on your payday loan your lender will likely attempt to withdraw the money they are owed straight from your account, which can mean bank fees for you. If they are unable to reclaim their money they will resort to collection calls and even lawsuits. Once the agreed loan period has passed the lender who you borrowed from will continue to seek any unpaid amount on your loan.
The best way to handle falling behind on payments is to get in contact with your lender. Most lenders will work hard with you to come up with a sensible repayment plan, rather than taking you to court.
Remember, during the time in which your loan is not being paid, it will still be accrediting interest.
What will the court process look like?
Taking you to court will always be a lender of last resort, wherever possible your payday or installment lender will try to arrange a sensible repayment program that caters to your needs. However, if co-operation stops or you are unable or unwilling to repay your loan your lender may take you to court.
Payday lenders in California, Texas or Illinois don’t just go to court over large cases, lots of lenders will be willing to go to court over relatively small amounts of money. You shouldn’t be surprised if your lender takes you to court over a relatively small loan.
If a lender does take you to court, it’s important that you show up. You should never ignore a lawsuit. A lot of lenders automatically win cases, because their clients do not show up to court. It is always in your best interest to attend court.
If you do not repay your loan and the payday lender or a debt collector will likely take you to court. If they win, or if you do not dispute the lawsuit or claim, the court will enter an order or judgement against you. The judgement against you will state the amount of money you owe. At this point the lender or collector can then get a wage garnishment order against you.
Can I avoid Wage garnishment?
Yes, in the majority of situations wage garnishment can be avoided. The easiest way to avoid wage garnishment is to communicate openly with your lender. When you start to have difficulty making payments, call your lender and let them know you are struggling. In most cases they will be able to offer you a payment plan that works better for you, but honest communication is key.
You also have other options when it comes to not paying off your payday loan, including declaring bankruptcy or entering into an IVA.