The gig economy continues to thrive, with more people than ever taking on side hustles to boost their income. Whether it’s freelance design, blogging, running an e-store, or affiliate marketing, earning money online has become a common practice. This trend is particularly appealing for those with unpaid debts or facing wage garnishment that is impacting their main source of income. However, a common concern for individuals with side hustles is whether debt collectors can come after their additional earnings.
What Is Wage Garnishment?
Wage garnishment is a legal process where a portion of your paycheck is withheld by your employer and sent to the court to pay off outstanding debts. This typically occurs after a court order, although in some cases, unpaid taxes can be garnished without one. Common reasons for wage garnishment include unpaid credit card bills, fines, and child support.
Does It Apply to Side Hustles?
While your employer is responsible for wage garnishment, debt collectors can still target your side hustle income through other means:
- Court orders: Creditors can seek a judge’s approval to garnish payments from your self-employed earnings.
- Bank levies: Depositing side hustle earnings into a personal account could result in frozen funds.
- Payment processors: Platforms like PayPal or Stripe may be monitored or frozen following legal action.
Local Laws
Each state and province has its own regulations regarding wage garnishment. In the US, the maximum amount that can be garnished is 25% of disposable income, with some states imposing lower limits. Certain regions, such as Texas, Pennsylvania, and North and South Carolina, prohibit garnishment for consumer debt. In Canada, the rules vary by province, with Ontario allowing creditors to garnish 20% of gross wages and Nova Scotia permitting 15%.
How to Protect Your Income
To safeguard your side hustle earnings, consider the following strategies:
- Keep business and personal finances separate in dedicated accounts.
- Utilize a business bank account for side hustle income.
- Establish a limited company (e.g., LLC or Ltd) to create a legal barrier between personal and business finances.
- Maintain detailed records of all payments and expenses.
- Seek advice from a debt advisor early on to prevent escalation.
- Familiarize yourself with the laws applicable to your region.
Endnote
While debt collectors may face more obstacles in accessing side hustle income compared to traditional paychecks, it’s essential to understand your rights and local regulations. Open communication with creditors or mediators can often prevent the need for involuntary payments. Stay informed and proactive to protect your earnings from potential garnishment.