Do Garnishments Affect Your Credit?

Wage garnishments mark the end of the long, painful road of debt repayment. To be garnished, a creditor must file a lawsuit, obtain an order of judgment then seek an additional court order that forces a debtor's employer to withhold a certain amount of the debtor's paycheck. By the time a debt gets to the garnishment phase, a significant amount of credit damage has already been done -- but a garnishment itself represents a mixed blessing for the debtor's credit rating.

Garnishments and Credit Reports

An order of garnishment will never appear on a person's credit report, so the garnishment itself has no credit impact. However, the judgment that authorizes the garnishment will appear on a credit report and can significantly impair a person's access to future unsecured credit. Also, depending on how the debt aged, it's possible that the original debt remains on the credit record as a write-off.

Income Reduction

Although the percentage of income that can be deducted by a garnishment order varies by state, in general, the debtor can only evade a garnishment by being unemployed. Assuming that the garnishment takes effect, the debtor will be left with less disposable income. For debtors who are already financially strapped, this loss of wages can destabilize an already fragile financial position, leading to slower payments on other credit accounts or even defaults on other loans. This cascade effect could lead to negative credit references on accounts unrelated to the garnishment.

Avoiding Garnishment

The only way to avoid a garnishment is to pay a debt to the creditor's satisfaction. The most significant credit hit in this process comes with the court's order of judgment, so reaching an out-of-court settlement is preferable to settling after the creditor obtains the court order. Some consumers hope to run out the clock on a debt by ignoring collectors and hoping the debt will simply be written off. Although this strategy does work in some cases, the write-off has a credit hit. But if the creditor is serious, the credit hit for a judgment is far worse -- so the sound strategy is avoiding judgments in the first place.

Silver Lining

All hope is not lost, however. By forcing repayment of an existing debt, garnishments lead to the satisfaction of outstanding credit accounts that, in the long run, may have less of a credit hit than if the account were merely written off as a loss. For example, if a credit card company wrote off a $1,000 balance and never collected on the debt, then the debtor will have a $1,000 unpaid charge-off on his credit for up to seven years. By obtaining a judgment and garnishment, that charge-off will eventually be listed as "paid in full."