Can the SBA Garnish My Wages for EIDL Default?

So your EIDL loan is in default, and your terrified that the SBA is going to start taking money directly out of your paycheck. Maybe you’ve heard horror stories about federal wage garnishment, or maybe you received a threatening letter mentioning administrative wage garnishment as a collection tool. The fear is real—the idea of your employer being contacted, of money being taken from your paycheck before you even see it, of losing control over your income is overwhelming. Your wondering: can the SBA actually do this? Do they need to sue me first? How much can they take? Is there anything I can do to stop it?

The short answer is YES—the SBA absolutely can garnish your wages for a defaulted EIDL loan, but whether they will in your specific case depends on critical factors, especially whether you personally guaranteed the loan. For EIDL loans over $200,000 where you signed a personal guarantee, wage garnishment is a very real risk once the debt goes into collection. The SBA (or more accurately, the Treasury Department handling collection) can garnish up to 15% of your disposable wages through a process called Administrative Wage Garnishment (AWG), and they can do this without ever suing you or getting a court order. It’s an administrative action that happens after they give you notice and an opportunity to challenge it, but if you don’t respond, the garnishment starts and continues every paycheck until the debt is paid.

However, there’s a critical exception: for EIDL loans of $200,000 or less that didn’t require personal guarantees, the SBA’s ability to garnish your personal wages is much more limited. If your not personally liable for the debt because there’s no personal guarantee and your business was properly structured as a separate legal entity, wage garnishment of your personal income shouldn’t be possible. But the SBA might still try, and if they do, you need to know how to assert your lack of personal liability as a defense. This article explains everything about SBA wage garnishment for EIDL defaults—how AWG works, what triggers it, how much can be taken, your rights to challenge it, the personal guarantee distinction, and what you can do to stop or prevent garnishment. If your worried about wage garnishment for your EIDL debt, read this entire article carefully.

What Is Administrative Wage Garnishment (AWG)?

Administrative Wage Garnishment is a federal debt collection tool that allows government agencies to garnish wages without going to court first. Unlike regular wage garnishment (which requires a creditor to sue you, obtain a judgment, and then get a court order for garnishment), AWG is an administrative process governed by federal regulations that bypasses the courts entirely.

Here’s how AWG differs from judicial garnishment:

No lawsuit required. The SBA or Treasury doesn’t have to file a lawsuit against you or obtain a judgment before garnishing your wages through AWG. The debt itself—the defaulted EIDL loan—is sufficient basis for garnishment without any court involvement. This makes AWG much faster and easier for the government to implement than traditional garnishment.

Administrative process with notice. AWG requires the government to send you written notice at least 30 days before garnishment begins. This notice must inform you of the debt amount, that garnishment is intended, your right to inspect records related to the debt, your right to enter into a repayment agreement to avoid garnishment, and your right to a hearing to dispute the debt or the garnishment. If you don’t respond within 15 business days requesting a hearing, the garnishment proceeds.

Limited to 15% of disposable wages. AWG is capped at 15% of your “disposable wages”—your pay after legally required deductions like taxes, Social Security, and Medicare, but before voluntary deductions like health insurance or retirement contributions. This is actually lower than the limit for judicial garnishment under state law, which can be higher in many states. The 15% cap provides some protection, though it’s still a significant chunk of your paycheck every pay period.

Continuous until debt is paid. Once AWG starts, it continues every paycheck until the debt is satisfied, you negotiate a settlement, or you successfully challenge the garnishment. It’s not a one-time deduction—it’s an ongoing garnishment that your employer must comply with for every pay period.

The legal authority for AWG comes from the Debt Collection Improvement Act and related regulations (31 CFR Part 285) that give federal agencies broad collection powers for delinquent debts. When your EIDL loan defaults and gets referred to the Treasury Department for collection (which typically happens around 180 days of non-payment), AWG becomes one of the primary tools they’ll use.

Can the SBA Garnish My Wages If My Loan Is Under $200,000?

This is where the personal guarantee distinction becomes critical. For EIDL loans of $200,000 or less, personal guarantees were not required. This means the loan obligation belongs to your business entity, not to you personally. In theory, if there’s no personal guarantee and your business is a separate legal entity (corporation or LLC), the SBA should not be able to garnish your personal wages because you’re not personally liable for the debt.

However, the practical reality is more complicated:

The SBA might try anyway. Even if you don’t have personal liability, the SBA or Treasury collection system might initiate wage garnishment against you. Why? Because their systems might not distinguish between loans with and without personal guarantees, or because they’re taking an aggressive approach hoping you won’t challenge it. We’ve seen cases where borrowers with loans under $200,000 and no personal guarantees received AWG notices threatening wage garnishment.

You must assert your lack of personal liability. If you receive an AWG notice but you believe you’re not personally liable (no personal guarantee, loan under $200,000, business is a separate legal entity), you MUST respond within 15 business days and request a hearing. At the hearing, you present evidence that there’s no personal guarantee, that the loan was to your business entity, and that you therefore shouldn’t be subject to personal wage garnishment. If you don’t respond and assert this defense, the garnishment will proceed even though you might not be legally liable.

Sole proprietors have no protection. If you operated your business as a sole proprietorship rather than as an LLC or corporation, there’s no legal separation between you and the business. Business debts are your personal debts automatically, regardless of whether there’s a formal personal guarantee. Sole proprietors with defaulted EIDL loans face personal wage garnishment even on loans under $200,000.

Corporate veil issues. Even if you have an LLC or corporation, if you commingled personal and business funds, failed to maintain corporate formalities, or used the business as your personal piggy bank, the SBA might argue that the corporate form should be disregarded (“piercing the corporate veil”) and you should be held personally liable. If they succeed with this argument, wage garnishment becomes possible even without a formal personal guarantee.

The bottom line: having a loan under $200,000 without a personal guarantee provides significant protection from wage garnishment, but it’s not automatic—you have to assert that protection when the SBA attempts collection, and your protection is strongest if you maintained proper separation between your business and personal finances.

How Much Can the SBA Garnish From My Paycheck?

Through Administrative Wage Garnishment, the SBA (via Treasury) can garnish up to 15% of your disposable wages. Understanding what “disposable wages” means is important because it determines how much they actually take:

“Disposable wages” definition. Disposable wages are the amount left after your employer deducts legally required withholdings—federal income tax, Social Security tax, Medicare tax, state income tax, and court-ordered support payments (like child support or alimony). The calculation does NOT account for voluntary deductions like health insurance premiums, retirement plan contributions, union dues, or loan payments. Those come out of your disposable wages, meaning the garnishment is calculated before those deductions.

Example calculation: Let’s say your gross biweekly paycheck is $3,000. After mandatory tax withholdings of $700, your disposable wages are $2,300. The 15% AWG would be $345 per paycheck. Your employer would send $345 to Treasury, and you’d receive $1,955 (minus any voluntary deductions like health insurance). Every single paycheck follows this pattern until the debt is paid or the garnishment ends.

Impact on your actual take-home pay. Losing 15% of your disposable wages is significant. For someone earning $50,000 annually, that’s roughly $7,500 per year going to the EIDL debt before you see it. For someone earning $75,000, it’s over $11,000 per year. This can create serious financial hardship, making it difficult to pay rent, mortgages, car payments, and other essential expenses. The reduction in take-home pay continues relentlessly every pay period, which is why wage garnishment is such an effective (and feared) collection tool.

Multiple garnishments. If you have multiple debts being collected through garnishment, federal law limits total garnishment to 25% of disposable wages for most consumer debts. However, federal debts like defaulted EIDL loans can potentially be garnished separately from state law garnishments, and the calculations can get complicated. If you’re facing multiple garnishments, you need legal advice about how the limits interact.

Cannot be reduced or negotiated once started. Once AWG begins, the 15% comes out every paycheck automatically. You can’t negotiate with your employer to reduce it—they’re legally required to comply with the garnishment order. Your only options to stop or reduce it are to challenge the garnishment through the hearing process, negotiate a settlement with the SBA/Treasury, enter into a repayment agreement, or pay off the debt.

What Notice Will I Receive Before Wage Garnishment Starts?

Before AWG can begin, the SBA or Treasury must send you written notice at least 30 days in advance. This notice is your warning and your opportunity to take action. Here’s what the notice must include:

• Nature and amount of the debt: The notice must explain what the debt is (your defaulted EIDL loan) and how much you owe, including principal, interest, and any penalties or fees.
• Intent to garnish: Clear statement that they intend to collect the debt through wage garnishment if you don’t resolve it.
• Right to inspect records: You have the right to inspect and copy records related to the debt.
• Right to repayment agreement: You can propose a repayment agreement to avoid garnishment. If you enter into an agreement and comply with it, garnishment won’t start.
• Right to a hearing: You have the right to request a hearing to dispute the debt or the garnishment. The notice must explain that you have 15 business days from the date of the notice to request a hearing in writing.
• Hearing issues you can raise: The notice typically explains what you can contest at a hearing—existence or amount of the debt, whether you’re subject to garnishment (lack of personal liability), financial hardship, etc.

This notice is sent by mail to your last known address. If you’ve moved and haven’t updated your address with the SBA or Treasury, you might not receive it, but the garnishment can still proceed because they fulfilled the notice requirement by sending it to the address on file. This is why keeping your contact information current is important even for debts you’re not paying—you need to receive notices about collection actions so you can respond.

The 30-day window and the 15-day hearing request window are critical. If you receive an AWG notice, you must act within 15 business days if you want to challenge it before garnishment starts. Missing this deadline means the garnishment proceeds, and while you might be able to challenge it later, stopping garnishment after it starts is much harder than preventing it from starting in the first place.

What Can I Do to Stop or Prevent Wage Garnishment?

If you’ve received an AWG notice or if you’re worried about potential garnishment, you have several options:

Request a hearing within 15 business days. This is your most important right. If you request a hearing in writing within 15 business days of the AWG notice, garnishment cannot begin until after the hearing is held and a decision is issued. At the hearing (which can be conducted by phone or in writing in many cases), you can raise defenses like:

• You don’t owe the debt (wrong person, debt was already paid, etc.)
• The amount is incorrect
• You’re not personally liable (no personal guarantee, loan under $200,000, separate business entity)
• Financial hardship—garnishment would prevent you from meeting basic living expenses
• You’ve entered into or are willing to enter into a repayment agreement

The hearing is conducted by a hearing official who reviews the evidence and arguments from both sides and issues a written decision. If you prevail, the garnishment is stopped or not initiated. If you lose, garnishment proceeds, but you’ve at least had your day in court (so to speak).

Negotiate a repayment agreement. If you can afford to make monthly payments but just can’t handle the full debt at once, propose a repayment plan. If the SBA/Treasury accepts your proposal and you comply with the payment schedule, garnishment will be avoided or stopped. The key is making the proposal reasonable—they need to believe you’ll actually make the payments and that the plan will result in repayment within a reasonable timeframe.

Submit an offer in compromise. If you can’t afford to repay the full amount, propose settling the debt for less. While you’re negotiating an OIC, collection actions including garnishment are typically suspended. If your OIC is accepted and you pay the settlement amount, the garnishment never starts or ends if it had already begun.

Pay the debt in full. Obviously, if you can pay off the entire debt, garnishment becomes moot. But most people facing garnishment can’t just pay tens or hundreds of thousands of dollars, so this option isn’t realistic for many borrowers.

File bankruptcy. If garnishment has already started and you can’t stop it through other means, bankruptcy creates an automatic stay that immediately stops all collection actions including wage garnishment. However, bankruptcy is a drastic step with major consequences, and EIDL debts might not be dischargeable depending on your situation. Bankruptcy should be a last resort and only pursued with guidance from a bankruptcy attorney.

Assert lack of personal liability. If you believe you’re not personally liable for the EIDL debt (no personal guarantee, loan under $200,000, proper corporate structure), assert this defense at the hearing. Provide evidence: your loan documents showing no personal guarantee, proof that the loan was to your business entity (not to you personally), corporate documents showing you maintained proper separation between business and personal affairs. If you can establish lack of personal liability, wage garnishment of your personal income should not be permitted.

What Happens If Wage Garnishment Has Already Started?

If you missed the notice or didn’t respond in time and wage garnishment has already begun, stopping it is more difficult but not impossible:

Request a late hearing. Even after garnishment starts, you can request a hearing. You’ll need to explain why you didn’t respond within the initial 15-day period (missed the notice, didn’t understand it, etc.), but hearing officials have some discretion to accept late hearing requests. If a hearing is granted and you prevail on your defenses, the garnishment can be stopped and garnished amounts returned.

Negotiate immediately. Contact the Treasury Offset Program or the entity handling collection and propose a repayment agreement or offer in compromise. Explain that the garnishment is causing severe hardship and you want to work out a voluntary payment arrangement. If they accept your proposal, the garnishment can be stopped.

Demonstrate financial hardship. If the garnishment is preventing you from paying for necessities—rent, food, utilities, medical care—you can request that the garnishment be reduced or stopped based on hardship. You’ll need to provide detailed financial information showing your income, necessary expenses, and that the garnishment leaves you unable to meet basic needs. This doesn’t eliminate the debt, but it might get the garnishment suspended temporarily while you work toward a solution.

Correct errors. If the garnishment is based on wrong information—they’re garnishing the wrong person, the debt was already paid, the amount is incorrect—provide evidence of the error and demand that garnishment be stopped and any garnished amounts refunded. Errors do happen in the federal collection system, and when they do, they must be corrected.

Consider bankruptcy if other options fail. If garnishment is taking so much of your income that you can’t survive, and you can’t stop it through negotiation or hearing, bankruptcy might be your only realistic option. The automatic stay immediately stops garnishment, giving you breathing room to address your overall financial situation.

Will My Employer Find Out About the EIDL Debt?

Yes. One of the most embarrassing aspects of wage garnishment is that your employer becomes aware of your debt situation. Here’s how it works:

Garnishment order goes to your employer. Once AWG is initiated, the Treasury sends a garnishment order to your employer. This order directs your employer to withhold the specified percentage from your paycheck and remit it to the government. Your employer has no choice but to comply—it’s a federal order, and failing to comply creates legal liability for the employer.

Employer knows you have a defaulted federal debt. The garnishment order doesn’t explain every detail of what the debt is for, but your employer knows you have some kind of federal debt that’s being collected through garnishment. Some employers are understanding, recognizing that businesses fail and people face financial difficulties. Other employers might view it negatively, particularly if you’re in a position involving financial responsibility. There’s federal law prohibiting employers from firing you for a single garnishment (though the protection is weaker for multiple garnishments), but the knowledge of your financial situation still affects your workplace relationship.

Administrative burden on employer. Your employer has to process the garnishment every pay period—calculating the garnished amount, withholding it, remitting it to the government, tracking it, and handling any administrative communications from the garnishment agency. This creates extra work for payroll, which some employers resent. Small employers might find this particularly burdensome.

No way to keep it completely private. Once garnishment starts, there’s no way to hide it from your employer. The garnishment order has to go through your employer’s payroll system. The only ways to prevent this are to stop the garnishment before it starts (through hearing, negotiation, or payment) or to work out a voluntary repayment plan that avoids involuntary garnishment.

This embarrassment factor is one reason many borrowers work hard to avoid garnishment—the financial impact is bad enough, but having your employer involved in your debt problems adds another layer of stress and humiliation.

Talk to an SBA Debt Defense Attorney Today

Wage garnishment for a defaulted EIDL loan is a serious matter that can dramatically affect your financial stability and even your employment situation. However, you have rights and options to prevent garnishment, challenge it, or minimize its impact. The key is acting quickly when you receive notice and understanding what defenses or alternatives apply in your situation.

Our firm has extensive experience defending against federal wage garnishment for SBA debts. We’ve helped borrowers successfully challenge garnishment by proving lack of personal liability, negotiated repayment agreements that stopped garnishment before it started, obtained hardship relief for clients where garnishment created impossible financial situations, and represented clients at AWG hearings to prevent or stop garnishment. We understand the federal debt collection system, the AWG process, and how to protect your rights.

If you’ve received an AWG notice threatening wage garnishment for your EIDL debt, or if garnishment has already started, don’t wait—contact us today for a free consultation. We’ll review your notice, assess whether you have defenses (like lack of personal liability), evaluate your options for stopping or preventing garnishment, and advise on the strategy for your situation. The consultation is free and confidential, but it could prevent you from losing 15% of every paycheck for years to come.

Time is critical—the 15-day hearing request deadline is strict. Call us now before the window closes.