50% of all small businesses fail in the first year and a whopping 95% fail in the first 5 years. While small businesses are often referred to as the backbone of the US economy, it can be a real struggle to keep on going year after year.
Many will struggle with cash flow and without cash to support a small business, it's hard to grow and even maintain business inventory and operations.
Small businesses often turn to one of the types of SBA loans for support. It's also the reason many small businesses worry after they default. Are you worried the Department of Treasury will garnish wages to cover your debts? Can they even do that?
Read on to learn more about wage garnishment with the Department of Treasury.
Wage Garnishment for Debt
In 2020 alone, 4.5 million Americans, or 3% of the US workforce faced wage garnishment for consumer debt. Let's make sure you understand what it means to have wages garnished.
Garnishment is a law that allows part of a worker's income to be taken from them and paid to a creditor through a court order. The court can grant permission and then require an employer to take either a set amount or a percentage from your wages. Then this money is paid to creditors.
In the case of the federal government, it does not need to obtain a court order. It can garnish your wages without filing suit.
Common causes of garnishment include credit card debt, student loans, auto loans, alimony, or child support. It's important to note that garnishers can't take all of your wages. The law only allows a certain percentage of how much you make to be eligible for garnishment.
The Wage and Hour Division of the Department of Labor has a whole calculation figuring how much can be garnished from a paycheck. There are two different calculations that can be used. The amount that's allowed to be garnished is the smaller of those two amounts.
The first calculation is how much is left, disposable income, after you pay your deductions such as taxes and Social Security. Once you get that amount, one-quarter of this amount can be garnished. The second calculation is based on the disposable earnings are greater than 30 times the federal minimum wage.
Remember, whichever number is smaller is the amount that would be allowed to garnish. So, how does this apply to SBA loans and the Department of Treasury?
Can the Department of Treasury Garnish Wages?
So are the rules the same for garnishing wages as they relate to your small business loan? No, the rules are not the same.
However, it's important to know, the Department of Treasury can, and will, garnish wages to pay off debts as they relate to your SBA loan.
The federal government uses the Bureau of Fiscal Service. This bureau is responsible for debt collection, including garnishment, for all federal agencies. Of course, this includes the Department of Treasury.
The Fiscal Service uses a policy called administrative wage garnishment or AWG. AWG is a debt collection process the permits a federal agency like the Department of Treasury to withhold in a garnishment up to 15% on an employee's disposable income. This applies to non-federal employees who have a delinquent non-tax debt owed to one of the federal agencies.
There is one key difference between garnishment and administrative wage garnishment. If your wages are garnished from your employer for a consumer debt, there must be a judgment order from a court. The AWG does not have to get a judgment order from a court to decide to garnish your wages.
Let's take a closer look at the garnishment process that might be used by the Fiscal Service for garnishment and your rights to appeal.
It's important to note again that the administrative wage garnishment process administered by the Fiscal Service does not need a court order. In fact, even if there's a court order at the state level related to this debt, the federal government through the Fiscal Service supersedes the state-level court order.
The Fiscal Service can issue an order to an employer of someone who owes a debt to a federal governmental agency like the Department of Treasury on behalf of the Small Business Administration, to garnish wages.
The wages would be taken from the employee's wages then sent directly to the Fiscal Service, who remember, acts as the government's debt collection agency. Once the Fiscal Agency has garnished funds, they forward the funds to the agency that has funds due.
Notice to the Debtor
One thing the Fiscal Srevice must do before they send a notice to an employer to begin garnishment is to send a notice to the debtor of their intentions to garnish wages.
The debtor can request a hearing to be held. If the debtor does this before 15 days of when the notice was mailed then the garnishment order can't be issued. The Fiscal Service must wait and a hearing must be held before that garnishment order can be sent.
If, however, the request for a hearing doesn't come until after the 15-day window, the garnishment order can still be sent to the employer. You can still request a hearing if you miss the 15-day window, but it's likely the garnishment order will still be sent until there are results from a hearing.
So, what if you do owe the debt and are in default? What grounds can you use to request a hearing to stop the garnishment?
There are two reasons you could request a hearing to stop or avoid garnishment from the Fiscal Service. You can request a hearing to discuss the amount or existence of debt that is owed. You can also request a hearing to discuss the terms of a proposed repayment schedule.
Job Loss or Bankruptcy
What if you don't have a job or lost a job? You should notify the Fiscal Service if you haven't been employed for at least a 12-month period of time. If you experienced an involuntary separation from your employer, you should also notify the Fiscal Service.
If you have filed for bankruptcy typically there is a bankruptcy stay put in place. You should notify the Fiscal Service if you have a bankruptcy stay in place. You will not get a garnishment order sent to your employer if you have a bankruptcy stay in place. You can either call the Fiscal Service or send a notice in writing. Once they are notified, the garnishment stops, at least temporarily.
The Small Business Administration has a whole process for holding hearings related to solving defaults on their loans.
Requesting a Hearing
If you have a private debt collector working on behalf of the Treasury Department which initiated the AWG (on behalf of SBA), you would follow the hearing notice instructions. You can always contact the Department of Treasury at the address below for procedure.
U.S. Department of the Treasury
Attn: AWG Analyst
Administrative Wage Garnishment Liaison
PO Box 830794
Birmingham, AL 35283-0794
1-866-896-2947 Telecommunications Device for the Deft (TDD)
SBA Loans and Default
There's no question that an SBA loan can be instrumental to the success of a small business. It provides the funds needed, often to stay afloat.
There are many different types of SBA loans available for businesses. Depending on the type of loan, the amount of money you need to borrow will impact the terms of the loan. These terms will also impact how long you have to pay back the loan.
If you don't make your payments like they are laid out in the terms of your loan, your loan will go into default.
One important thing to know about the SBA and SBA loans is that they will get their money due, one way or another. If your loan goes into default, you will need to look for an avenue to resolve the debt. They won't hesitate to use the Department of Treasury through the Fiscal Service to quickly start an administrative wage garnishment.
Getting the Help You Need to Resolve Your SBA Loan
If you find yourself in trouble with your SBA loan, you don't want to go it alone. You will need an experienced legal team to help you navigate the resolution process.
The truth is you're much more likely to have success if you have legal representation. The SBA is more likely to take you seriously and consider your options when you have an attorney representing you.
You also want an attorney because the rules and laws related to SBA loan recovery are complex. You want someone who's well versed in your options to resolve the debt.
Garnish Wages for SBA Loans
The Department of Treasury can and will garnish wages to collect a debt. Do not ignore that possibility and work hard with the SBA on your loan default.
If you need help with your SBA loan, we can help. Contact us today for a consultation about your case.