A wage assignment is when creditors can take money directly from an employee’s paycheck to repay a debt.
This process is voluntary because you sign the right for the creditor to take the funds when you sign for the loan, so wage assignments don’t require a court order. However, you do have the right to stop a wage assignment at any time.
Learn how wage assignments are typically used to repay debt obligations such as loans, back taxes, or child support. If you agree to a wage assignment, it’s important to understand how it works and what your rights and obligations are.
Definition and Example of Wage Assignment
A wage assignment is a voluntary agreement to let a lender take a portion of your paycheck each month to repay a debt. This process allows lenders to take a portion of your wages without taking you to court first.
Borrowers may agree to allow a lender to use wage assignments, for example, when they take out payday loans. The wage assignment can begin without a court order, although the laws about how much they can take from your paycheck vary by state.
For example, in West Virginia, wage assignments are only valid for one year and must be renewed annually. Creditors can only deduct up to 25% of an employee’s take-home pay, and the remaining 75% is exempt, including for an employee’s final paycheck.
How Wage Assignment Works
If you agree to a wage assignment, that means you voluntarily agree to have money taken out of your paycheck each month to repay a debt.
State laws govern how soon a wage assignment can take place and how much of your paycheck a lender can take. For example, in Illinois, you must be at least 40 days behind on your loan payments before your lender can start a wage assignment. Under Illinois law, your creditor can only take up to 15% of your paycheck. The wage assignment is valid for up to three years after you signed the agreement.
Your creditor typically will send a Notice of Intent to Assign Wages by certified mail to you and your employer. From there, the creditor will send a demand letter to your employer with the total amount that’s in default.
You have the right to stop a wage assignment at any time, and you aren’t required to provide a reason why. If you don’t want the deduction, you can send your employer and creditor a written notice that you want to stop the wage assignment. You will still owe the money, but your lender must use other methods to collect the funds.
Research the laws in your state to see what percentage of your income your lender can take and for how long the agreement is valid.
Wage Assignment vs. Wage Garnishment
Wage assignment and wage garnishment are often used interchangeably, but they aren’t the same thing. The main difference between the two is that wage assignments are voluntary while wage garnishments are involuntary. Here are some key differences:
|Wage Assignment||Wage Garnishment|
|Money is taken from your paycheck voluntarily to repay debt||A legal procedure where a portion of an employee’s earnings is withheld to repay debt|
|No court order required||A court order usually precedes wage garnishments|
|You have the right to stop the wage assignment at any time||You need to go through a legal process to stop a wage garnishment|
Once you agree to a wage assignment, your lender can automatically take money from your paycheck. No court order is required first, but since the wage assignment is voluntary, you have the right to cancel it at any point.
Wage garnishments are the results of court orders, no matter whether you agree to them or not. If you want to reverse a wage garnishment, you typically have to go through a legal process to reverse the court judgment.
You can also stop many wage garnishments by filing for bankruptcy. And creditors aren’t usually allowed to garnish income from Social Security, disability, child support, or alimony. Ultimately, the laws in your state will dictate how much of your income you’re able to keep under a wage garnishment.
Creditors can’t garnish all of the money in your paycheck. Federal law limits the amount that can be garnished to 25% of the debtor’s disposable income. State laws may further limit how much of your income lenders can seize.
- A wage assignment happens when money is taken from your paycheck by a creditor to repay a debt.
- Unlike a wage garnishment, a wage assignment can take place without a court order, and you have the right to cancel it at any time.
- Creditors can only take a portion of your earnings. The laws in your state will dictate how much of your take-home pay your lender can take.
Illinois Legal Aid Online. “Understanding Wage Assignment.” Accessed Feb. 8, 2022.
West Virginia Division of Labor. “Wage Assignments / Authorized Payroll Deductions.” Accessed Feb. 8, 2022.
U.S. Department of Labor. “Fact Sheet #30: The Federal Wage Garnishment Law, Consumer Credit Protection Act's Title III (CCPA).” Accessed Feb. 8, 2022.
Sacramento County Public Law Library. “Exemptions from Enforcement of Judgments in California.” Accessed Feb. 8, 2022.
District Court of Maryland. “Wage Garnishment.” Accessed Feb. 8, 2022.