Before purchasing an automobile, it is important to budget wisely and make sure you will be able to afford the monthly payments. However, sometimes unforeseen circumstances arise and without the adequate amount of emergency savings, you may be unable to continue making car payments. It is important to understand the effects of not being able to afford loan payments, including what can happen to your wages or salary.
Garnishment of Wages or Salary
When your employer garnishes your wages or salary, it withholds a certain percentage each pay period until the debt you owe is paid off. A garnishment can occur because of a failure to pay your taxes, child support, loans, court fines and credit card bills. The federal law permits a debtor to request that an employer garnish up to 25 percent of the employee's wages or salary. However, many states set the limit below this amount.
Requirements
For a lender or other entity, except the Internal Revenue Service, to require that the employer garnish your wages, it must obtain a court order stating that it is permissible. Often, it depends on the amount you owe as to whether the lender will sue you. For smaller amounts, it is often not cost-effective.
State Limits
Each state sets its own limit as to how much the employer is permitted to garnish for each pay period. This is generally a percentage of your pay. Some states, such as North and South Carolina, Texas and Pennsylvania, do not permit an employer to garnish your wages or salary except in cases where you owe the Internal Revenue Service. In these states, the lender or credit card company must pursue other avenues to obtain the money that you owe, such as repossessing your car.
Ways to Avoid Garnishment
Before buying a car, calculate your monthly income and expenses. Create a new budget that includes the added expense of a car payment and insurance increase. Determine how much you can afford to spend without a significant risk of default. Accumulate savings that equal at least three to six months of expenses so you can avoid defaulting on the loan if you lose your job, for example. In many cases, if an event occurs that leaves you unable to afford payments, speaking to the creditor can help avoid court proceedings and possible garnishment of your wages. This is an expensive avenue for the lender as well as the borrower.
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