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Wage Garnishment from Deadbeat Tenants

Wage Garnishment from Deadbeat Tenants

Thankfully, the vast majority of our clients never have to worry about this situation. Very few tenants ever have to have an eviction filed against them, since we're so thorough with our tenant screening on the front-end, but no screening can ever completely eliminate evictions. So what happens when an eviction is filed and the tenant is removed or abandons the property while owing a lot of money?

First, we won't rent to anyone unless they pay a full month's rent for a security deposit upfront. Some individual landlords (and even some inexperienced property managers) will allow a tenant to move in without a full security deposit, or even no security deposit at all, with the idea that the tenant will pay the security deposit in installments over the first couple of months. This is the worst idea imaginable for two reasons:

  1. A tenant who doesn't have enough cash to pay a security deposit and the first month's rent is almost certainly going to be a problem tenant. This tenant is invariably a tenant who pays late every month, or who has to be evicted almost immediately.
  2. Judges will generally not award you a monetary judgment for the unpaid security deposit payments when you go to evict the tenant. So if you set up a payment plan for the security deposit over the first two months of the lease, and the tenant doesn't make the payments and you file eviction, you don't have any money held to cover the unpaid rent, and you won't be able to collect it after the fact.

Don't ever let someone move into your house without getting a full month's rent for a security deposit up-front! No negotiation, no exceptions, period. If a property manager tries to tell you otherwise, run away as far as you can. He's just trying to get the property rented as soon as possible to collect the leasing fee, or he's completely inexperienced and will cause you a whole host of problems later.

So, now that we've established that a full month's rent is being held as a security deposit from the beginning, that already serves as some security against the tenant not paying. Rarely do we see damage to a property, even from bad tenants, that exceeds the security deposit. So at least some money should be available from the security deposit to cover unpaid rent when you evict a tenant.

But since the eviction process can take more than a month, the security deposit won't cover everything. That means that we'll have to go after the tenant for the money. There are several ways that we can collect money from a deadbeat tenant.

The most obvious way is wage garnishment. If a monetary judgment has been issued by the judge in the eviction case, then we can file a motion of continuing wage garnishment against the tenant. The court will send a Sheriff or other process server out to the tenant's place of employment ordering the employer to withhold money from the tenant's paycheck and send it to the court. The court holds the money for 15 days to wait to see if the tenant files for bankruptcy or files to challenge the garnishment (very unusual), and then we can apply to "condemn" the funds, meaning have them sent to us to cover the tenant's outstanding balance. Generally, the employer is required to withhold 25% of the tenant's after-tax income from each paycheck for 6 months. If the amount owed still isn't paid at that point, then we would have to file again for another 6 months, and so on until the debt is paid in full. Obviously, this requires the tenant to have a job, so if a tenant has been laid off or fired, then wage garnishment isn't an option. But this is a very powerful tool in many cases to collect unpaid rent.

A less well-known method of collecting unpaid rent is a bank account levy. If we know the tenant's banking information, then we can file to have the court issue a levy against the tenant's checking account. A Sheriff or other process server will serve the bank with a court order to take the money from the tenant's account and send to the court. The court will then hold the money temporarily as they do with a garnishment, and then we can apply to condemn the funds. If the tenant doesn't have enough money in the bank account, then the bank will empty the account and send what was available. Theoretically, we can file again to get more money when the account has more money deposited, but most tenants will close the bank account and open a new one once they realize that we're levying their bank account. At that point, it becomes difficult (if not impossible) to track down the tenant's new bank.

Another good way to pressure a tenant to pay is to file a report with the three major credit bureaus. When a tenant leaves a property without paying off his balance, we file a report with the three credit bureaus to put a red flag on the tenant's credit report. It shows up as a collection account, reduces the tenant's credit score, and will serve as a big warning to any legitimate landlord to not rent to that tenant. We have had tenants come crawling back to us over a year after abandoning a property and begging to be put on a payment plan to pay off their debt so that they can get the red flag removed from their credit report because they want to buy a house, lease a car, or rent a new property.

Finally, personal property, such as a car owned by the tenant, can be confiscated from the tenant to satisfy a court judgment. This is a very difficult way to collect debt, and we would normally refer this to an attorney if an owner wanted to go this route to collect the money.

Of course, there are special circumstances that can make any of these methods more complicated than they would seem on first glance. For example, if a tenant's only source of income is social security, then that money is untouchable. Child support payments are also out of bounds. Sometimes a tenant who doesn't have a particularly great job will quit his job as soon as a wage garnishment beings and find a new job. Etc. These are all complications that make collections more difficult, and in these cases, we will typically hand the collections case over to a firm that we work with who handles more complicated collections cases. Obviously, they charge a hefty fee to collect the money, but getting back 60% of your money instead of 0% is definitely better.

Clearly, this is all pretty complicated, even in the simplest cases. This is just one of many reasons that it pays for you to have a professional property manager to handle your rental property instead of trying to do it yourself. Don't be one of the many owners who comes to us after the fact begging for help with a deadbeat tenant after you've already gone for months without rent income. Be proactive and hire a property manager from the beginning so you don't have to deal with these problems. Give us a call or submit a request for information here on our website and we'll get right back to you.