What is a wage assignment?
The process of deducting money from an employee’s paycheck to satisfy a debt obligation is known as wage assignment. Depending on the circumstances, wage assignments may be made voluntarily or involuntarily. Various debt obligations, such as back taxes, defaulted student loan debt, and child and spousal support payments, can be paid back with an automatic withholding plan.
Usually, a wage assignment is the lender’s last-ditch attempt to collect repayment from a borrower who has defaulted on a loan. When wage assignment is carried out involuntarily, it is also known as wage garnishment and necessitates a court order.
How Wage Assignment Works
Wage assignments are typically incurred for debts that have gone unpaid for a prolonged period. Wage assignments can be divided into two categories: voluntary and involuntary. Employees may sometimes opt for a voluntary wage assignment to pay for things like union dues or to contribute to a retirement fund.
Employees may even voluntarily opt into a wage assignment plan as a part of a payday loan repayment promise.
When a wage assignment is undertaken voluntarily or mandated by a court and served to an employer, it is processed as part of the employer’s payroll procedure. The employee has to do nothing, as their paycheck is decreased by the amount of the assignment and noted on their pay stub.
Wage assignments are a valuable tool for collecting unpaid debts, but unfortunately, they may be associated with abusive lending practices.
Wage Assignment: Voluntary
In a voluntary wage assignment, a worker asks their employer to withhold a portion of their paycheck and send it to a creditor to pay off a debt. Loan agreements may include, in their terms, a voluntary wage assignment clause should the borrower default on their loan.
Payday lenders often include voluntary wage assignments in their loan agreements to improve their chances of being repaid. Such a lender may begin a wage assignment without a court order. Laws regarding wage assignments vary by state.
For example, in West Virginia, wage assignments are capped at 25% of a worker’s take-home earnings, the employee’s signature must be notarized, and agreements must be renewed annually. Under Illinois law, a lender cannot resort to wage assignment until a debt is 40 days in default. The pay assignment can only continue for up to three years, and the worker may cancel the wage assignment at anytime.
Wage Assignment: Involuntary
Involuntary wage assignments need a court order and are more likely to be deployed to collect spousal and child support payments that a court has authorized. Forced wage assignments may also be utilized to recover overdue court penalties or defaulted school debts.
Special Considerations
Several states enable people to sign up for voluntary child support arrangements. In such a circumstance, both parents must agree to a strategy. Once that occurs, a voluntary wage assignment may commence. If a child support or welfare agency is involved, they must approve any plan.
Conclusion
- A wage assignment withdraws money from an employee’s paycheck to repay a loan.
- Wage assignments may be either voluntary or involuntary.
- When wage assignment is carried out involuntarily, it is also known as wage garnishment and necessitates a court order.
