Asset Protection When Facing Garnishment: Staying on the Right Side of the Law
Suppose you had a judgement entered against you many years ago. It’s been so long you have virtually forgotten about it, thinking the creditor has long since abandoned its desire to enforce it. Maybe the creditor wrote it off or failed to renew the judgment and let it expire (e.g., in California, a judgment expires in ten years unless renewed). Then one day you get served with a Complaint to Enforce Judgement and an accompanying Application for Garnishment of your wages and bank accounts. What do you do to protect your assets against this or any similar action while staying on the right side of the law?
Challenge the Judgment or Claim – Validity, Hardship, or Exemption
First and foremost, if you believe the judgement was wrongfully taken against you, you can make a timely appearance and challenge it in court. Unfortunately, many times the judgement was properly obtained and/or is based on a debt you admittedly owe. In that case, some states allow a timely motion to limit the garnishment based on hardship. In Florida, you can file a head of household exemption. Wages cannot be garnished from the head of any household in that state. Other potential exemptions include: SSI, Social Security and VA benefits, Worker’s Compensation and Unemployment Insurance benefits, and certain retirement and pension benefits. Carefully researching your state’s unique exemption laws is thus crucial.
As long as you qualify, the quickest legal route to protecting your assets from a valid judgement is filing for bankruptcy protection. The moment you file, all legal actions against you are stayed or, put another way, stopped dead in their tracks. Your wages cannot be garnished, your car cannot be repossessed, and you cannot be evicted from your home by your mortgage holder or your landlord.
For most individuals, two types of bankruptcy are possible. One is a Chapter 7, which is often called a straight bankruptcy. The other is a Chapter 11 or 13, which is called reorganization. All block the garnishment. Then, depending on your situation, the debt from which the garnishment arises is extinguished, or the trustee puts you months later on a very modest repayment schedule that spreads your payment between all of your creditors.
Smart Handling of Bank Accounts
Smart, common sense handling of your bank accounts is crucial to protect your funds from garnishment. First, do not tell your creditor the name of your bank or your account numbers until and unless you are ordered to do so by the court. Some advisors suggest immediately withdrawing all money from your bank accounts until the garnishment issue is resolved. If your money in not in the bank, it cannot be garnished from your bank account. Simple as that.
This does not mean you have to carry $10,000 cash in your wallet or put it under your mattress. Today there are numerous cash cards to hold the funds, from Green Dot to Pay Pal. A corollary to this is terminating any direct deposits, as a direct deposit may sometimes be garnished as soon as it hits the account and before you can withdraw the funds. A less drastic measure is to open a second account with an obscure bank which the creditor is not likely to reach with a “shotgun" garnishment. A “shotgun" garnishment is where the creditor serves all the major banks in your area with the garnishment, hoping your account accounts will be in one or the other.
Smart Handling of Employment Information
Smart, common sense handling of your employment information is also crucial to protect your wages from being garnished, at least in the immediate future. Never give the creditor or his attorney your employment information until or unless the court orders you to do so. For example, if you do talk to them and explain you can’t pay the debt now because you are strapped, they may ask you to prove it to them by providing them your pay stubs and a list of your monthly debts. However, the moment you provide them your pay stub, they will serve a garnishment order on your employer, requiring the employer to withhold the garnished funds and pay those funds over to the creditor.
Of course, the creditor does not always need to rely on you to obtain this information. Sometimes it already has your employment information on the credit application (unless you have changed jobs), and sometimes your employment information can be ascertained from your credit report or social media sites such as LinkedIn or Facebook.
What You Can’t Do – Crossing the Line
There are certain things you cannot do to protect your money or assets without crossing the line.
Orders of Examination: Creditors often lack information such as bank accounts and the name of your employer. This is especially so when the debt is an old one and you have moved to another city or state and/or have changed employment. In that case, the creditor will ask the court for an Order of Examination or OX. The OX orders you to show up to the creditor’s attorney’s office and submit to an examination under oath about your assets and accounts.
In this examination you will be asked your employer’s name, address, and contact information, and you will be asked about any and all bank accounts and other assets. In fact, you will be ordered to bring documents substantiating this information. If you fail to attend the OX, the court may issue a bench warrant for your arrest and hold you in contempt. If you show up but then provide deliberately false and misleading information, you may be charged with perjury or violating laws against providing false information in that setting.
Thus, once you get served with an OX, it is time to contact qualified creditor-debtor counsel for advice on how to proceed, such as filing for bankruptcy protection.
Secret Deals with Your Employer
Sometimes when a debtor anticipates a wage garnishment order he tries to make a deal with his employer to be paid in cash, under the table, or off the books. This can get you in hot water fast. It can also get your employer in hot water. It is unlawful for an employer to do this, or to in any way circumvent the wage garnishment process. It is also unlawful for you to conspire with him to do so.
The rule of thumb for dealing with garnishment orders is to contact qualified debtor-creditor counsel and fully educate yourself as to the legal steps to avoid or limit the garnishment.
U. S. Code: Title 15, Chap. 41 II, §1673. Garnishment Restriction.
U.S. Courts Official Website (bankruptcy and alternatives): http://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-7-bankruptcy-basics.
Federal Statutes and Regulations on Non-Bankruptcy Exemptions
Retirement Benefits: 5 USC § 8346 – Civil Service employees; 22 USC § 4060 – Foreign Service employees; 10 USC § 1440 – Military service employees; 45 USC § 231m – Railroad workers; 42 USC § 407 – Social Security benefits; 38 USC § 3101 – Veteran’s benefits; 50 USC § 403 – CIA employees; and 38 USC § 1562(c) – Military Medal of Honor Roll pensions
Survivor’s Benefits: 10 USC § 1450 – Military service; 28 USC § 376 – Judges, U.S. court directors, judicial center directors, and U.S. Supreme Court Chief Justice’s administrative assistants; and 33 USC. §775 – Lighthouse workers
Death and Disability Benefits: 5 USC § 8130 – Government employees; 33 USC § 916 – Longshoremen, harbor workers; and 42 USC § 1717 – War, risk, hazard, death, or injury compensation
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