a legal means of collecting an outstanding debt by which a court orders a third party (the garnishee)—who owes or will owe money—to pay money to the creditor rather than the debtor.
How a Garnishee Order Works
When the court issues a garnishee order, the direct relationship between a debtor and a creditor is widened to include a third party. This third party could be the debtor's employer, the debtor's bank, or any other institution or person that owes the debtor money. The court instructs the third party to pay the money, which would normally go to the debtor, to the creditor instead.
In the United States, there are some variations depending on the state, but the process is essentially the same. The creditor should ask the debtor to settle the full debt by letter, email, or invoice. The amount they demand should include all applicable legal penalties and interest. If the debtor does not pay or cannot pay the full amount they owe then the creditor should send a letter confirming that, despite receiving a demand to pay, the sum is still outstanding and the debtor is in default. Next, The creditor files a lawsuit. If the debtor does not respond within a set period, generally within 30 days, the creditor files a motion called a 'Motion for Entry of Default Judgement.' The creditor then applies for a Garnishment Order which the court serves to the garnishee.
A large company may well have experience with garnishee orders and routinely use them for the recovery of debts. However, an individual might find it a lengthy process, especially if the debt is a large one and they are repaying it in installments. The main advantage of this option is that there is a very good possibility that they will finally settle the debt, but it is the last resort. Someone should only take this route if all other ways to recover the money have failed.
Example of a Garnishee Order
Let's say that Mr. Jones, who works for Mega, earns $2,000 dollars a month. However, he owes the Acme corporation $10,000. In this case, Acme can seek a garnishee order which will require that Mega pay the outstanding debt to Acme in installments set by the court, leaving Mr. Jones with enough to live on.
The order will remain in force until the debt has been settled, whether this is through this salary deduction or by Mr. Jones finding another way to pay. Mr. Jones could be subject to more than one garnishee order. For example, another may be issued against his bank account. A garnishee order is generally used as a last resort when the debtor and creditor have been unable to come to an agreement to settle the debt by other means.
Types of Garnishee Orders
Garnishee Order Issued to an Employer
As the debtor has proved unable or unwilling to pay the money owed, he or she is effectively sidelined. The court instructs the debtor's employer to deduct a certain amount from wages or salary due and pay this sum to the creditor. Generally, this money is deducted in installments until the full sum owed has been repaid so as to leave the debtor with enough money to live on. If the debt is a large one this method of securing payment can take a long time.
Garnishee Order Issued to a Bank
If there are sufficient funds in the debtor's bank account then the bank will cover the full amount of the debt and transfer it to the creditor. If the debtor's balance is less than the amount owed, the creditor will receive a proportion of the money owed and the outstanding amount when funds become available.
It is not only employers or banks which may be instructed to act as a garnishee. Any institution or person that owes the debtor money may be instructed to pay this money to the creditor. An example would be if the debtor has tenants, the court may instruct them to pay their rent to the creditor.