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Can Debt Collectors in Raleigh Garnish Your Wages?

Raleigh.  Can a debt collector garnish wages?  Will garnishment have a disastrous impact on FICO credit scores?  Will this prevent newlyweds from buying a home?

Keith recently married Sara, a mother of two.  Collection agencies pursue Sara for old debts.  She fears wage garnishment since it happened to her ex.  Are Sara’s fears valid?

Debtors can legally pursue wage garnishment.  Rules and limitations apply.  Impact on FICO credit scores and ability to buy a home are separate issues.  I asked Keith to get more specific.  Sara’s debt falls into two categories:

1.  Old debt.  When in college she was given credit cards – a common marketing ploy of credit card companies.  She was unable to pay them off.

2.  New debt.  Divorce left her with joint credit card accounts that her ex is not paying.

Let’s look at new debt first.  The three questions are can wages be garnished, impact on FICO credit score and will this prevent them from buying a home.

A.  Wage garnishment possible.  Possible does not mean probable.  I’ve heard this happens about 10% of the time though I’ve never seen it happen to folks who have applied for mortgages over the years.  Process is expensive and credit card companies only attempt this when they expect to come out ahead.  Large debts make better targets – some say $5,000 or more.

B.  Impact on FICO credit score.  Wage garnishment doesn’t have a negative impact on credit scores.  Why?  It’s not a new debt.  Your credit score has already been dinged for this debt.

C.  Impact on buying a home.  Yes since it reduces money available to pay back mortgage.

Now let’s answer the three questions as it relates to old debt.  In Sara’s case debt is over 7 years old and no longer reported on her credit reports.

A.  Wage garnishment possible.  Lender must successfully sue borrower and secure a judgment prior to starting wage garnishment.  Most states establish statute of limitations.  In North Carolina, it’s 3 years.  So, Sara’s old debt is safe from wage garnishment.

B.  Impact on FICO credit score.  None unless Sara makes a payment.  New activity on old debt makes debt current business which is reportable.

C.  Impact on buying a home.  None.

What should Keith and Sara do?  Focus on new debt.  Keep in mind that…

… FICO scores not only criteria.  Underwriters, who decide yes or no on borrower’s loan applications, will require action on current debt that is delinquent.   Talk to loan officer before taking action.

…debt sold to collection agencies may be subject to negotiation and possible removal from credit report.

Sources: NOLO.com, Department of Labor and my blog on removing negative from credit report.

Kathy Godin, Award-Winning Loan Officer and Branch Manager
CrossCountry Mortgage Inc.
(919) 789-9888
Where people, not computer robots, answer the phone.
Proudly Serving All of North Carolina

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