Once a creditor has a judgment against you for unpaid bills, the creditor can try to collect the judgment through garnishment of your wages or bank account or by taking your property through a sheriff's sale. But, in many cases, your wages, income, or property may be exempt from collection, which means that it cannot be taken from you.

Garnishment is a legal action that a creditor can use to make your employer pay part of your wages directly to the creditor. A bank account may also be garnished.

If you owe money for consumer goods or services, a creditor cannot garnish wages or bank accounts until the creditor goes to court and gets a judgment against you.     

It is not legal for wages or bank accounts to be garnished for unpaid consumer debts if there is no judgment against you. If your wages or bank accounts have been garnished in these situations without a judgment, you should contact a lawyer right away.

Once the creditor has a judgment against you, the creditor can get a "writ of garnishment"  - an order that tells your employer or bank to garnish your wages or account. You are not given advance notice of the garnishment. A copy of the garnishment writ will be mailed to your last-known address after it has been given to your employer or bank.

Wages

The amount of money that may be taken out of your paycheck and sent to the creditor depends on the amount of your disposable earnings.

Disposable earnings is the amount of money that is left from your paycheck after all the deductions required by law are taken out. The required deductions include federal and state income taxes, and social security, but not voluntary deductions such as payments to a credit union or for health insurance premiums. The amount of your disposable earnings includes only your wages and not other income or money that you have.

Some wages are exempt, which means they cannot be garnished:

• If your disposable earnings are less than $170 per week, your wages cannot be garnished.
  
• If your disposable earnings are more than $170 per week, creditors must leave you with 75 percent of your paycheck or $170 per week, whichever is more.

Examples:

1) You have disposable earnings of $185.00. 75% of $185 is $138.75. $170.00 is larger than this, so you get to keep $170, and the creditor gets the rest ($15.00).

2) You have disposable earnings of $300. 75% of $300.00 is $225.00. $225.00 is larger than $170.00, so you get to keep $225.00, and the creditor gets the rest ($75.00).

The garnishment papers your employer fills out should list your wages for one week only. If your employer lists your wages for a period of more than one week, the creditor might garnish more wages than the law allows.

If you are paid once every two weeks, then your wages can be garnished only if you earn net wages each pay period of more than $340. If you are paid twice each month, you can be garnished only if you earn net wages each pay period of more than $368.33. if you are paid once each month, you cannot be garnished unless you earn net wages of more than $736.67. If you earn more than these amounts, the creditor can garnish either 25% of your net wages, or the amount that your net wages exceeds the figures that are listed above - whichever is less.

Remember, a creditor cannot garnish your wages unless the creditor has a judgment against you.If exempt wages are garnished, you will need to file a claim of exemption to get back the wages that should not have been taken. You should be sent claim of exemption papers when you are sent a copy of the writ of garnishment.

It is against the law to fire you because your wages are garnished. If you think you were fired because of a garnishment, contact a lawyer.

Other Exempt Income

Some kinds of income are exempt, which means that they cannot be garnished at all by creditors for consumer debts. For example, welfare, unemployment, veterans benefits, Social security, workers' compensation, pensions, and child support payments that you receive cannot be garnished for consumer debts. If a creditor tries to garnish these kinds of income, you must file a Claim of Exemption to protect your funds. See "Filing a Claim of Exemption." 

Bank Accounts

Exempt income (income that legally can't be taken from you) is still exempt when placed in a bank account, as long as the source of the income can be identified. If you have a bank account, you should not have exempt and non-exempt income in the same account.

If a creditor has a judgment against you and garnishes your bank account, checks you have already written may bounce. The bank can charge you handling fees on the returned checks. If you have only exempt income in your bank account, you might be able to stop the creditor from garnishing your bank account by writing to the creditor who has a judgment against you and explaining that all of the money in your bank account is from exempt income.

Once a creditor has a judgment against you, he or she can take some of your personal possessions and have them sold by the sheriff to pay the judgment. But there are limits on what a creditor can do in collecting a judgment.

Property the Creditor Cannot Take

• A creditor cannot take exempt property, property which the law says cannot be taken from you under any circumstances. See "Exempt Oregon Wages, Money and Property."
  
• A creditor cannot force the sale of your home to collect a judgment which, at the time it was entered was $3,000 or less.

If exempt property is taken, you must file a Claim of Exemption with the court and ask the court to set a hearing to get it back. See "Filing a Claim of Exemption." 

If your home and land are exempt, or if the judgment at the time it was entered was $3,000 or less, the creditor cannot force the sale of your home. But the creditor can put a "lien" on your house and the land. This means that you will need to pay the debt before you can complete the sale of your home and land.

Property That is Not Exempt

Some of your property may not be exempt because you have a written agreement with the creditor that gives the creditor the right to repossess (take back) the property if you don't make the payments.

Property also may not be exempt because your equity in it is higher than the amounts the law protects. "Equity" is the part of the property that belongs to you only, and not to someone else, like a bank, or co-owner. The following example shows how to figure your equity in something you own.

How to Figure the Equity in Something You Own

Example: You have a car you could sell for $5,000,but you still owe the bank $3,000.

Once you know your equity in your property, look to see the amount that is exempt on the list of exempt property.  For example, for your car to be totally exempt (protected from collection) your equity in the car can only be $1,700 or less. If your equity in your car is more than $1,700, a creditor can take and sell your car. After deducting the cost of the sale, the creditor has to give you $1,700 (the exempt amount) of the sale money. The rest of the money from the sale goes to the creditor to pay off your debt.

If your creditor doesn't know how to find your property, bank account or employer, or does not know what your property is worth, the creditor can get a court order that requires you to appear in court to give them that information. You may be able to fill out a questionnaire about your financial situation instead of going to court. Ask the creditor about this if you get served with papers for a judgment debtor exam.

At the court hearing, the creditor will ask about your income and any property you own. Although you cannot be sent to jail for failing to pay debts or judgments for consumer debts, you can be arrested and brought before a judge for failure to show up for a judgment debtor examination.

What it Means to beJudgment Proof

If all of your income and all of your property is exempt, you are "judgment proof." See the "Exempt Oregon Wages, Money and Property" for a list of exempt income and property (which cannot be taken from you).

Being "judgment proof" means that even if a creditor has a judgment against you, you have no property and no income that the creditor can take from you at this time to pay off the judgment.

A judgment lasts for ten years and can be renewed for another ten years, so even if you are judgment proof right now, your situation could change. For example, if you get a higher paying job or a more expensive car, your new wages or property may not be exempt, and you may no longer be judgment proof.

Even if you are judgment proof, the creditor can take back specific items if you have signed a written agreement that allows repossession if you don't make the payments.