How my employee's $15,000 debt became mine

I was out of the office when the court papers were served and my panicked partner paged me. "We've just been ordered to pay a collection agency $15,000!"

This was quite a blow to a small practice digging out of debt. Several of our large HMO contracts had been cancelled and we'd been forced to dip into our line of credit to pay our operating expenses while we scrambled to find new patients with other payers. But our practice wasn't the debtor named in this suit. One of our employees had bought a car three years ago, and hadn't been able to make the payments. The car had been repossessed, and the debt had been turned over to a collection agency.

The collection agency said that they had served us with papers a year ago, directing us to begin garnishing the employee's wages. Since we hadn't responded, the collection agency said we were liable for the full amount of the debt plus the court costs.

At our next staff meeting, though, I found out that one of our receptionists had signed for the papers when they were served. Instead of bringing them to me, she had given them to the employee whose name was on the envelope. The employee had then "lost" them.

Unfortunately, the lawyer we hired told us, ignorance of a garnishment order doesn't count in the eyes of the law. He suggested that we file papers immediately to show that we were willing to garnish the employee's wages, and also file documents explaining the cause for our delay. However, he thought we'd probably be held responsible for the full amount anyway. We'd be left trying to recoup the loss from our employee, who was likely to leave rather than pay us six months of his salary.

Things were looking grim, especially since we had very little left in our line of credit and a large malpractice insurance payment coming due. Our employee, who had been with us for 20 years, felt awful for having put us in this position. He contacted his bankruptcy lawyer for advice. Luckily, the lawyer discovered that the debt had been dismissed in the bankruptcy settlement and wasn't collectible.

The rules on garnishment I've learned a lot about garnishment from this close call. Here's some of it: According to federal guidelines, wage garnishment for debt repayment usually can't exceed 25 percent of an employee's disposable earnings, but can go as high as 60 percent if garnishment is for alimony or child support. An additional 5 percent of disposable earnings may be garnished if payments are more than 12 weeks in arrears. State laws may differ, though, and could affect the amount being garnished.

The Web site for the Department of Labor's Employment Law Guide for Wage Garnishment, http://www.dol.gov/asp/programs/guide/garnish.htm, is a helpful resource. The pertinent laws fall under regulations administered by the Department of Labor, specifically Title III of the Consumer Credit Protection Act. For more information about Title III of the CCPA, contact the Wage and Hour Division's toll-free help line at 1 (866) 4US-WAGE.

If I had actually received the wage garnishment order, I should have completed the worksheet-all the information you need is on the employee's pay stub-sent it and all of the accompanying paperwork back to the court, and started making the appropriate deduction from the employee's paycheck immediately. Subsequently, I would have been sent a Court Order directing me where to send the withheld funds. Garnishment continues until there is a court order to stop, which could occur if the employee files for bankruptcy or pays off the debt.