It’s more difficult for a creditor, including the government for federal student loans, to garnish income from someone who is self-employed — but it can be done. Once the creditor is aware that someone is self-employed, they can have a second order entered to go after non-earnings paid to the debtor. If a debtor runs his or her income through their own LLC, this can always be worked around with a second order directed toward the LLC, and then a regular wage garnishment if they are an employee, or a non-earnings order if they are an independent contractor.
The good news for someone faced with this, is that it will take time for the creditor to figure out how to reach this income – this is time that a settlement can be reached with a private creditor or a federal loan can be rehabbed to cure any default. Bankruptcy should also be considered. The bad news is if you continue to ignore it, the garnishment once it finally goes through is not limited to 15-25% of your wages, but now they can take 100%. So like many things legal, ignore a garnishment order at your own peril – even if you are self-employed.
Non-Earnings Garnishment Orders
A savvy creditor will return to court and ask for a non-earnings garnishment order. This order directs anyone who’s in the process of paying the debtor to withhold those funds and pay the funds directly to the creditor or its agent.
These orders differ in other ways from wage garnishment orders, some good and some bad, depending on the viewpoint taken:
- Non-earnings garnishment orders can be applied to attach anything other than wages (self-employment income, bank account funds, etc.)
- 100% of the debt can be garnished (not just 25% of disposable income or 30 times minimum wage).
Self-Employment by Self-Owned LLC or Corporation
Many people are employed by their own LLC or corporation or are a member of their own LLC. Generally speaking, those that set themselves up as bona fide employees of their own company can have their wages garnished and must comply with a valid wage garnishment order.