Your Guide to Administrative Wage Garnishment of SBA Debts

You ever heard of Administrative Wage Garnishment(AWG)? Well, you might want to pay attention because it’s quite the big deal, particularly when it involves SBA debts. The Debt Collection Improvement Act of 1996 gives Uncle Sam the power to pinch a chunk of someone’s disposable pay to settle an outstanding non-tax debt without needing to bring in the judges. Thanks to this act seeping into the Small Business Administration regulations, the SBA can virtually run after anyone who’s been employed for 12 straight months or more to foot their unpaid non-tax bill to the Agency.

The ABCs of Wage Garnishment

Now, let’s talk more about wage garnishment. It’s a legal framework that allows an employer to shave off a percentage of a debtor’s disposable pay to settle an outstanding loan. Here’s a fun fact: it’s usually a gnarly process to enforce. Traditionally, it requires a judgement in court and a semi-annual certification program to keep justifying the garnishment.

Knowing Your Disposable Pay

Disposable pay is the part of your paycheck left after deductions like health insurance premiums and any mandatory deductions like social security taxes and withholding taxes (court orders not included). It can be made up of salary, bonuses, commissions, vacation pay, and more.

Understanding Delinquent Non-tax Debt and Debt or Claim

A delinquent non-tax debt is pretty much any unpaid debt that isn’t related to the obligations under the Internal Revenue Code. Similarly, a debt or claim refers to any money, funds, or property determined by a Federal Government official to be owed by an individual to the United States. This debt may include accrued interests, penalties, or administrative costs.

The Nuts and Bolts of AWG and Federal Salary Offsets

AWG is pretty similar to a salary offset that is meant for federal employees who are lagging behind on their non-tax debts owed to the US. However, in the AWG scenario, the debtor is not a federal employee and could involve state or local government workers. Legally, an employee should have clocked at least 12 months of continuous employment before garnishment proceedings can start. Dealing with AWG? You have a 30-day notice compared to a 60-day notice given in federal salary offset scenarios.

Start of Administrative Wage Garnishment Proceedings

If the SBA determines that a borrower or guarantor owes a delinquent non-tax debt, they can kickstart administrative wage garnishment proceedings to withhold a portion of your wages to settle the debt.

The SBA’s Initial Notice

In this case, the SBA will knock at your mail with a written notice at least 30 days before hitting the garnishment button. This letter will outline the debt type, the amount, their intent to seek debt repayment from your wage until it’s all repaid, and your rights, including the timeframe within which to exercise these rights.

Your Rights as an SBA Debtor

As an SBA debtor, you could ask to review non-privileged SBA records related to the debt, draft a written repayment agreement with the SBA based on agreeable terms, and have a hearing before an SBA hearing official regarding the debt amount or the proposed repayment schedule terms under the garnishment order.

AWG Hearing Details

Procedural rules: The rules for AWG hearings are categorized under 13 C.F.R. § 140.11.
Request for hearing: If you dispute either the debt existence or amount or the repayment schedule terms, you can request a hearing in writing.
Type of hearing or review: If the hearing official decides the documentary evidence cannot resolve the matters, they will organize an in-person or telephone oral hearing. If there’s no need for an oral hearing, a paper hearing will be organized to decide on the issues after a review of the written record.

Refunds for Wrongful Garnishment by the SBA

If the SBA wrongfully garnishes your pay or garnishes an excessive amount, rest assured the SBA will pay back promptly. That is, if either a hearing official or Judge asserts that you do not owe a debt to the United States or if the SBA finds that your employer transferred withheld wages to them even after the debt has been fully paid.

Consequences for Employers who Reject the Garnishment

If your employer rejects a garnishment order, they could face a lawsuit from the Agency for any amount that was supposed to be withheld from your immediately payable and owed wages according to the stipulations in this section. Nonetheless, no such lawsuit can be lodged until the collection action involving you, the debtor, concludes, unless there’s a need to prevent the expiry of any applicable statute of limitations period.

Does AWG Comply With State Anti-deficiency Laws?

Well, yes. The AWG final regulations specify, “This section applies despite any State law” and “SBA’s receipt of payments under this section does not prevent SBA from pursuing other debt collection remedies. SBA may pursue debt collection remedies separately or together with administrative wage garnishment.” But it’s really up to the courts to define this language sufficiently to fend off any defenses.

Your Deadline for AWG

Different from court-actions, AWG has no statute of limitations on initiation. However, the equitable principle of laches may apply. If AWG is initiated after an “unreasonable” number of years after the loan went into default, you may be able to raise a defense of laches.

Will the SBA pay attention to Red Flags before Pursuing AWG?

The answer is: they’d better! There are certain ‘red flags’ that the SBA should be aware of when pursuing AWG. These can include part-time employees, those earning close to the minimum wage limit, and a debtor with a habit of switching jobs regularly.

And now that you’re familiar with AWG, why not give us, the Lawscape, a call? Facing an Administrative Wage Garnishment tied to an SBA loan default may seem daunting but we’re here to help you navigate through. We have the experience and expertise to protect your interests and defend you against an Administrative Wage Garnishment issued by the Treasury Department’s Bureau of Fiscal Service. What’s more, the first consultation will be on the house. Contact our seasoned SBA workout attorney today at 212-460-5004.