When A Debtor Challenges Your Bank Garnishment

I am not a lawyer, I am a judgment matchmaking expert (Judgment Broker). One of the tools that can be used to recover a judgment, is to levy (take) an asset of the debtor. Examples are vehicles, bank accounts, or wages.

Sometimes such levy tools seem to work at first - until you get notice that the debtor has filed a claim of exemption. Claims of exemption (and 3rd-party claims) can be filed with the sheriff at any time up to the moment the money is released to the creditor.

Exemptions are protections allowed by laws that protect certain kinds of income and assets. One exemption-like effect occurs when you try to levy wages, if there was already an ongoing levy ahead of yours. (Your levy will not work due to the previous levy.) Laws protect certain dollar amounts in bank accounts, and also some personal property of the debtor's choice, vehicles, and the tools of their trade, etc.

Some incomes and assets are off limits to most creditors. However, certain kinds of debts can reach and take normally exempt assets, for example, delinquent child support, alimony, and federal taxes.

Some examples of exemptions include unemployment benefits, most types of pensions, retirement plan assets or payments, child support payments, Supplemental Security Income (SSI), veterans benefits, temporary assistance for needy families, certain types of community property assets, disability income, and fixed dollar amounts as required by state and federal laws.

State laws may also add extra limitations on bank account garnishments. As an example, in New York, the first $2,500 in a debtor's account is off limits, if that account ever received protected (Social Security disability checks, for example) electronic deposits in the 45 days prior to the bank's receipt of the levy. In New York, even with unprotected funds, the first $1,716 is levy-proof. Other states have, or are planning, similar first-dollar bank levy restrictions.

Once the judgment debtor claims an exemption with the sheriff, if the creditor wants a chance of getting the money "owed" them, they must start and show up at court hearing where they and the debtor, can explain their sides of the story to the judge or commissioner.

When a judgment debtor files a claim of exemption, the creditor must schedule the court hearing to occur within days, or a few weeks at most. When the creditor fails to show up at the court hearing, they lose and the debtor's exemption claim is automatically granted. If the debtor does not show up, you win.

If the judgment debtor claims an exemption with the sheriff, the creditor will be mailed a notice. To contest this, the creditor must mail back to the judgment debtor (certified mail, return receipt requested) a declaration objecting to the debtor's claim of exemption and a "notice of hearing" about objection to the exemption claim. The creditor needs to send notice of the hearing to the court.

The court hearing usually needs to held (varies by state) within 2 weeks of the creditor getting the exemption claim. The creditor must act quickly to try to win. If you know for sure the debtor is poor, or you believe their exemption is valid, you might as well drop the matter and hope your debtor's luck improves. However, you cannot simply drop it, you need to follow up, to make sure the matter gets resolved. If you do not object to the exemption claim, or fail to object within (E.G.) seven days after receiving the judgment debtor's claim of exemption, then within (E.G.) ten days following your receipt of the exemption claim, you must take action. You need to obtain a court order, and deliver it to the garnishee (most often a bank or employer) telling them to release the exempt assets to the judgment debtor.

If one does not comply with all the exemption rules, the judgment debtor is entitled to receive from you a penalty of (E.G.) $50 plus the actual damages they sustain because their exempt property was not released.

If you decide to show up in court and contest the exemption claim, be prepared at the hearing to quickly and clearly explain to the judge why the court should disallow the judgment debtor's exemption(s).

If you show up in court, the burden is usually on the debtor to prove their exemptions are valid. It's not enough for a judgment debtor simply to claim an exemption. The debtor usually needs to bring documented proof to the court.

If the debtor claims the funds in their bank account are from disability funds, they need to bring a copy of their bank records showing the deposit patterns to the account coming from disability income. The deposits should all be the same approximate amount, and there should be some documentation showing it is disability income. Just claiming a general hardship is usually not enough to win an exemption hearing. Most judges will want to see proof an exemption applies. If the debtor is telling the truth, they will likely have the proof handy.

If you know that the judgment debtor is telling the truth, you can contact the bank or employer in writing, and ask them to release the levy. As of May 1, 2011, electronically deposited exempted funds, such as Social Security, will now be "tagged" by the federal government, making it easier for financial institutions to separate exempt and nonexempt funds to be garnished. Nonexempt funds that are not direct deposited will not be electronically tagged.

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