Wage Garnishment Checks From Payroll Companies Bogging You Down? Here's a Better Way.

Every collection law firm knows the envelope. It's from a payroll company or an employer's HR department. Inside is one check and a remittance sheet. The check covers garnishments for three different employees. The sheet lists their names and the amount withheld from each, maybe with a court case number, maybe without. Your file numbers aren't anywhere on it.

Someone on your team now has to work out which three accounts those payments belong to, split one check three ways, post each piece, deposit the whole thing to the right trust account, and make sure each client's remittance shows its share. Then they do it again next week, because the same employer pays every pay period.

Garnishment checks are some of the most dependable payments a creditor firm receives. They're also some of the most tedious to process. Here's why, and what you can do about it.

A steady stream of small payments

Wage garnishment isn't rare. The ADP Research Institute analyzed 2016 pay data covering about 12 million U.S. workers and found that 7 percent had wages garnished. Child support was the most common reason, at about 3 percent of employees, followed by student loans and consumer debt at 2.9 percent. Twelve percent of workers with a garnishment were subject to more than one type.

Federal law shapes what those payments look like. Under Title III of the Consumer Credit Protection Act, a garnishment for an ordinary debt can take no more than the lesser of 25 percent of an employee's disposable earnings or the amount by which those earnings exceed 30 times the federal minimum wage. At $7.25 an hour, that floor is $217.50 a week. Where a state's rule protects more of the paycheck, the state rule controls.

Run the numbers and you can see why garnishment produces so much paper. An employee with $600 in weekly disposable earnings can have at most $150 withheld for a consumer debt. That payment comes every week, or every two weeks, until the judgment is satisfied. A firm with 400 active garnishments on biweekly payrolls is looking at about 870 separate payments a month, most of them modest, many of them bundled, and every one tied to a judgment that has to be tracked to the penny.

Why garnishment checks are harder than consumer checks

A consumer who mails a check is paying their own account, and usually writes a reference number on it because your letter asked them to. A garnishment check works differently, and nearly every difference adds work:

• The payer isn't the debtor. The check comes from an employer or a payroll provider, so the name on it tells you nothing about which account to credit.
• One check, many accounts. Employers and payroll services often remit for several employees, sometimes for several creditors' matters, in a single check with a remittance list.
• Their identifiers aren't yours. A remittance typically carries an employee name and perhaps a court case number. Your system is organized by your own file numbers.
• The amount moves. Disposable earnings change with hours, overtime, and deductions, so the garnished amount can differ from one pay period to the next.
• Payments stop without warning. An employee changes jobs, a bankruptcy is filed, or the judgment is paid off, and the stream simply ends.
• Every format is different. Each payroll provider and in-house payroll department has its own remittance layout, and some send nothing but the check.

Each of those is manageable alone. Together they turn a stack of garnishment mail into a research project every Monday.

The cost of a slow garnishment desk

The obvious cost is staff time. The less obvious costs are the ones that carry risk.

When garnishment payments sit unposted, balances are wrong. A consumer who calls to ask what they owe gets a number that ignores three weeks of withholding. The Fair Debt Collection Practices Act prohibits misrepresenting the amount of a debt, so a balance that lags reality is more than an inconvenience. Clients feel it as well, in remittances that arrive late or have to be corrected.

Speed matters most when something changes. Once a debtor files for bankruptcy, the automatic stay applies, and courts have looked closely at how creditors' counsel handle garnishment money that arrives after notice of a filing. In one Chapter 13 case, the U.S. Bankruptcy Court for the District of Nebraska held that counsel's policy of sending post-petition garnishment funds to the Chapter 13 trustee, instead of returning them to the debtor, violated the stay. You can't route a payment correctly if you don't know, quickly, which account it belongs to and what's happening on that account.

And because these are client funds, a law firm has to get them into the right trust account and keep a record that will hold up when a client or a bar auditor asks where a payment went.

Frequently asked questions