Paying debts on time is important to maintain your financial health and avoid legal trouble like civil lawsuits. If you fail to pay a debt for too long, your lender could take you to court to try to win a judgment against you. Losing a civil lawsuit can result in garnishment, which allows a creditor to collect a debt from third parties that owe you money or hold your property.
A civil judgment can allow a creditor to garnish your wages. Under wage garnishment, your employer gives a portion of your paycheck to your creditor to pay the debt you owe, reducing the amount of pay you receive until the debt is paid off. A creditor may also be able to garnish cash you are owed for work performed as an independent contractor. Garnishing wages is a way creditors can collect debts over time even if you don't have any cash to pay a debt at the time of a judgment. The federal government does, however, limit the amount that you wages can be garnished so that you take home enough cash to make ends meet.
Losing a lawsuit can allow a creditor to contract your bank to garnish your accounts. A bank garnishment can force your financial institution to hand over your deposits to pay off the debt you owe. Personal bank accounts may qualify for an exemption from bank garnishment, which prohibits the creditor from taking your entire account balance.
If you own a rental property, a creditor can potentially file a garnishment against your tenant. A rental garnishment lets a creditor take the rental payments that your tenant would normally pay to you to fulfill a debt. Rental garnishments stay in place until a debt is paid or the end of a tenant's rental agreement.
A federal law called the Fair Debt Collection Practices Act protects certain types of income from garnishment. According to the Federal Trade Commission, various federal sources of income -- such as Social Security, Supplemental Security Income, military annuities and survivors’ benefits, veteran's benefits and federal disaster assistance -- are generally exempt from garnishment. Federal benefits can, however, be subject to garnishment if you owe back taxes, alimony, child support or student loans.