Definition and Example of Wage Assignment
How Wage Assignment Works
Wage Assignment vs. Wage Garnishment
Definition and Example of Wage Assignment
A wage assignment is when creditors can take money directly from an employee’s paycheck to pay off debts. Wage assignment occurs when money is taken from your paycheck by a creditor to settle a debt. Unlike wage garnishment, wage assignment can happen without a court order, and you have the right to revoke it at any time. Creditors can only take a portion of your income. The laws of the state you live in will determine how much net pay your creditor can take.
How Wage Assignment Works
If you agree to a wage assignment, it means you voluntarily agree to have a certain amount deducted from your paycheck each month to pay off the debt. State laws govern when a wage assignment can occur and how much a creditor can take from your paycheck. For example, in Illinois, you must be at least 40 days behind on your loan payments before your creditor can start a wage assignment. Under Illinois law, your creditor can take up to 15% of your pay. Wage assignments can last for up to three years after the agreement is signed.
Wage Assignment vs. Wage Garnishment
The terms wage assignment and wage garnishment are often used interchangeably, but they are not the same thing. The main difference between them is that wage assignment is voluntary while wage garnishment is mandatory. Here are some key differences:
- Wage Assignment: Money is taken from your paycheck voluntarily to pay off debts. No court order is required. You have the right to stop the wage assignment at any time.
- Wage Garnishment: A legal process in which a portion of an employee’s earnings is deducted to pay off debts. Wage garnishment is typically preceded by a court order. You must go through a legal process to stop wage garnishment.
Once you agree to a wage assignment, your creditor can automatically take money from your paycheck. No court order is required first, but because wage assignment is voluntary, you have the right to revoke it at any time.
You can also stop various wage garnishments by filing for bankruptcy. Creditors are typically not allowed to garnish income from Social Security, disability, child support, or alimony. Ultimately, the laws of the state you live in will determine how much income you can keep under wage garnishment.
Creditors cannot garnish all the money in your paycheck. Federal law limits the amount that can be garnished to 25% of the debtor’s net income. State laws may impose further restrictions on how much income creditors can garnish.
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Sources:
- Illinois Legal Aid Online. “Understanding Wage Assignment.” Accessed Feb. 8, 2022.
- West Virginia Division of Labor. “Wage Assignments / Authorized Payroll Deductions.” Accessed Feb. 8, 2022.
- U.S. Department of Labor. “Fact Sheet #30: The Federal Wage Garnishment Law, Consumer Credit Protection Act’s Title III (CCPA).” Accessed Feb. 8, 2022.
- Sacramento County Public Law Library. “Exemptions from Enforcement of Judgments in California.” Accessed Feb. 8, 2022.
- District Court of Maryland. “Wage Garnishment.” Accessed Feb. 8, 2022.
Source: https://www.thebalancemoney.com/what-is-wage-assignment-5218520
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