Rethinking the garnishment exemption process

June 7, 2010 by Todd Murray · Leave a Comment 

I’m often asked whether a creditor can garnish a bank account that contains social security (or other exempt money). The answer–at least in Minnesota–is that creditors can garnish your bank account containing exempt money. They just can’t keep the exempt money if you properly claim an exemption. Unfortunately, the account can remain frozen for a couple of weeks while the exemption process plays out. Obviously, not having access to an account for a couple of weeks results in bounced checks, unpaid bills, and bank fees for most people.

Despite the flaws, creditors argue that this is the fairest approach because the creditor doesn’t know whether exempt money is in the account. Only the debtor has that information, so it makes sense to put the burden for proving the exemption on the debtor. While true, this argument completely ignores the role of the third party to the garnishment process–the bank. Many consumer advocates have long argued that banks get an unjustified free pass in this situation. And this argument makes some sense, especially in an age where most federal benefits are delivered electronically to a person’s account. Here are some of the suggestions bouncing around:

  • Give debtors an opportunity to claim an exemption before their accounts are garnished.
  • Require banks to review the account in question, and refuse the garnishment if all the funds in it are exempt. If the exempt money is commingled with non-exempt money, the bank should allow the garnishment to reach only the non-exempt money. Banks, of course, will argue that this places too high of an administrative burden on them. But it’s hard to take this argument at face-value when you consider that banks are making a bunch of money by charging consumers a fee each time their account is garnished.
  • Along the same lines as the previous suggestion, force banks to create a separate account for the exempt money. This way, it will be easy for the bank to determine if the debtor is receiving exempt money and how much.
  • Prohibit bank garnishments if the account balance is below a certain dollar amount. Creditors will obviously argue that this creates the potential for abuse by debtors, but there is some legal justification for it. For example, most states have laws that allow only a certain portion of a person’s wages to be garnished. These laws recognize that people need some money to live on. Why can’t we apply this principal to bank garnishments too?

I think the third option is probably the fairest compromise, and I often recommend that my clients take the initiative and open a separate account to put their exempt money into. This approach allows consumers to have unrestricted access to exempt money, minimizes the administrative burden on the bank, and still gets the creditor all the money they’re entitled to.

If you still have questions about garnishment, feel free to download my free guide How to Survive Garnishment. It’s packed with information and tips for handling garnishment and will answer most of your questions about the garnishment process. If the guide doesn’t answer all of your questions, I offer 30 minute consultations for $150.

And if you’re being garnished and were never served with a lawsuit, I may be able to help you stop the garnishment by vacating the underlying judgment. Feel free to use the contact form in the upper right corner of this page to contact me to discuss the possibility of getting the judgment vacated.

(photo: suavehouse113)


Claiming garnishment exemptions in Minnesota

June 29, 2009 by Todd Murray · 1 Comment 

Editors’ note: this post only discusses exemptions in Minnesota. For a detailed explanation of exemptions in another state, please consult with a consumer attorney in your area.

Without question, dealing with garnishment is the most frustrating aspect of debt collection for consumers. Whether it’s a bank or wage garnishment, having a debt collector seize your hard-earned money is a significant disruption to your life and can cause a great deal of stress. But many sources of money are exempt from garnishment, which means that a debt collector can’t keep your money if it comes from one of those sources.

In Minnesota, virtually all forms of need-based government aid are exempt from garnishment. Some of the most common forms of need based aid are social security, supplemental security income (SSI), energy assistance, and medical assistance (MA). Other types of need based aid that are exempt include: Minnesota family investment program (MFIP), emergency assistance and emergency general assistance (EA & EGA), work first program, general assistance medical care (GAMC), and Minnesota supplemental assistance (MSA). This isn’t a complete list and virtually any form of government aid that you receive based on your income is probably exempt from garnishment under Minnesota law. Other common Minnesota exemptions include any money you receive for child support, unemployment benefits, workers’ compensation, and veterans’ benefits. Some of the less common exemption sources of funds include retirement pensions (up to a certain dollar amount), disability, and insurance proceeds for damages to exempt property (usually your home or vehicle). And while it’s not technically an exemption, under current Minnesota law a debt collector can’t keep money from a joint account that doesn’t belong to the judgment debtor.

If you’re facing a wage garnishment, it’s important to know that a debt collector can only take 25% of your after-tax wages. This exemption also applies if the debt collector garnishes your bank account after you deposited your pay check. And if you make only the federal minimum wage (or less) your wages are usually completely exempt from garnishment. Further, if you receive any form of need-based aid, such as those described above, your wages are totally exempt from garnishment. Minnesota law provides for this exemption if you currently receive need-based aid, or if you received any need-based aid in the last 6 months. This is an important provision for Minnesotans receiving energy assistance. Most recipients of energy assistance receive it from October through March, which make the recipient’s wages exempt for the entire year if she re-enrolls in the program the following season.

To claim an exemption, it’s important first to understand the garnishment process. This post gives a general overview of how the process works. For a wage garnishment, the debt collector must provide you with a form notifying you of their intent to garnish and an exemption form 10 days before starting the wage garnishment. To claim an exemption from a wage garnishment, all you have to do is write the appropriate exemptions on the exemption form and mail it back to the debt collector. It’s critical to do this immediately, or at least within 10 days of receiving the form. You should also provide proof of your exemption, such as your benefit notice, with the exemption form.

For a bank garnishment, you won’t get notice of the garnishment until 5 days after the bank freezes your money. Fill out the exemption form that the bank and debt collector mail to you, noting the appropriate exemption. You also need to provide proof that the funds that were seized by the bank arose from an exempt source. This last point is the cause of considerable confusion for consumers. It’s not enough to show the debt collector that you receive exempt money, you also have to prove that the funds that were actually seized contained this exempt money. Debt collectors will refer to this as “tracing”. Sending the debt collector a copy of your bank statements that show the deposit of exempt funds, along with your benefit statements will usually accomplish the task.

If you merely mail the completed exemption form to the debt collector, and fail to provide the required tracing, the debt collector will probably object to your exemption and refuse to return your money. If this happens, you should schedule a court hearing in front of a judge to determine whether your funds are exempt. Court administration will help you set up the hearing and provide notice of the hearing to the debt collector. On the day of your hearing, be sure to bring proof of your exemption AND bank statements proving the funds seized were from an exempt source. Failure to do so could delay the court’s decision or could lead to the court denying your exemption.

Finally, it’s important to understand that claiming an exemption when you’re not entitled to one could lead to the court ordering you to pay a penalty to the debt collector. Make sure any exemptions you claim are legitimate.

If you still have questions about garnishment, feel free to download my free guide How to Survive Garnishment. It’s packed with information and tips for handling garnishment and will answer most of your questions about the garnishment process. If the guide doesn’t answer all of your questions, I offer 30 minute consultations for $150.

And if you’re being garnished and were never served with a lawsuit, I may be able to help you stop the garnishment by vacating the underlying judgment. Feel free to use the contact form in the upper right corner of this page to contact me to discuss the possibility of getting the judgment vacated.

Photo: http://www.flickr.com/photos/mgifford/3645676100/