Liens and Garnishments — Legal Regulations
Liens and garnishments are legal devices used by creditors and other individuals to recover debts and money judgments. While liens and garnishments serve a similar purpose, they function in very different ways. A lien is a security interest granted over an item of property, such as a house or a car. A garnishment, on the other hand, is a method of collecting a debt from a person's wages or other monetary compensation. Both liens and garnishments must adhere to strict federal and state guidelines.
Liens
A lien is placed on an item of property in order to secure repayment of a debt. Liens are typically imposed to obtain the payment of attorney's fees, court judgments, taxes, and monies owed on construction or renovation projects (known as mechanic's liens). State law regulates the placement and enforcement of most liens.
Imposing a lien on property does not guarantee that a debt will be paid immediately or completely. Rather, a lien gives a person standing as a creditor to receive a portion of the proceeds if the property is sold or refinanced. If the property is never sold or refinanced, the lien will yield no payment.
Even if property is sold or refinanced, payment is not guaranteed. Creditors with superior standing may be paid first, leaving little or no money to satisfy remaining lien-holders. In order to obtain status as a priority creditor, lien-holders may wish to "perfect" their lien. A perfected lien is paid before the liens of third party creditors. Perfection is governed by state law, and is typically accomplished by giving third party creditors notice of the lien.
Garnishments
When an employed person refuses to pay a debt or money judgment, a court may order that his or her wages be "garnished." Garnishment allows money to be deducted from an employee's paycheck and paid directly to a creditor. Garnishments are typically imposed to repay delinquent court fines or judgments, child support and taxes.
There are limits on how and when wages may be garnished. Title III of the Consumer Credit Protection Act (CCPA) provides various safeguards to workers, such as limiting the total amount of earnings that may be garnished in one week and prohibiting employers from discharging employees on the basis of wage garnishment unless the employee's earnings have been subject to garnishment for more than one debt. Title III is administered and enforced by the Wage and Hour Division of the Employment Standards Administration.
Under Title III, garnishment is typically limited to 25% of an employee's disposable income, though up to 60% of income may be taken if the monies are used to pay delinquent child support or alimony. States may impose lower maximum garnishment thresholds or prohibit wage garnishment altogether. North Carolina, Pennsylvania, South Carolina and Texas limit wage garnishment to debts related to taxes, child support, federal student loans, and criminal fines or restitution.
A debtor who needs his or her entire paycheck to pay for basic support may file a form with the court and receive relief from garnishment. Additionally, bankruptcy typically stops garnishments for most debts.
