Garnishment is one of the collection methods authorized by state law that allows judgment creditors to obtain the property of the judgment debtor, which is accomplished by the attachment of money or property owed to the debtor but held by a 3rd party.
The most common cases of garnishment involve the attachment of the debtor's future wages and the attachment of a debtor's bank account. The judgment creditor is the garnishor while the 3rd party holding the debtor's property is the garnishee. So in wage garnishment, the debtor's employer would be the garnishee and in the garnishment of a bank account, the bank would be the garnishee. The debtor must also be notified of the garnishment action so he may either contest the garnishment or claim that the property held by the garnishee is exempt by state law.
In most states, the creditor must post an indemnity bond, especially for a pre-judgment garnishment.
The garnishor files an affidavit that the garnishee holds property or owes a debt to the debtor. The court clerk, pursuant to an order of the court, then issues a writ of garnishment, which is a specific type of writ of execution, that is delivered to the sheriff, who then serves the writ on the garnishee. If the writ is issued by the clerk of a Bankruptcy Court or a federal U.S. District Court, then a United States Marshal serves the writ. Rule 69 of the Federal Rules of Civil Procedure stipulates that a federal writ of execution must be carried out in accordance with the law of the state where the court that issued the writ is located, but that federal statutes determine the extent to which state law applies.
The service of a writ of garnishment requires that:
- the property be located,
- the garnishee is presented with the writ,
- the property is identified as garnished, and
- notice must be given to the appropriate parties of the writ and the attachment or garnishment of the property.
- The property is then transferred to the control of the sheriff or U.S. Marshal, under the supervision of the court.
- The sheriff or marshal who served the writ will then record on the writ the actions that were taken and whether it was successful or not.
The writ gives the garnishee a prescribed duration to answer the writ and describes the property or money owed to the debtor that is held by the garnishee.
The garnishee must answer the writ, either by accepting it or by raising a defense. The garnishee can claim that:
- it does not hold any property or money of the debtor;
- that it holds the property, but that it has the right of a setoff or other defense;
- or the garnishee can claim that the property is exempt for the debtor.
The writ of garnishment must also be served on the debtor so that he can oppose it or claim that the property is exempt under state exemption laws.
The garnishor must then either controvert the garnishee's or the debtor's answer or let it lapse. If controverted, then a summary procedure is held to determine if the garnishee either holds nonexempt property of the debtor or owes a nonexempt debt.
Since garnishment is nothing more than the subrogation of the rights of the debtor by the garnishor, the garnishor has no greater rights than the debtor has with respect to the property or the garnishee. Also, because the debtor is not a party to the garnishment action, he is not legally bound by any agreement between the creditor garnishor and the garnishee.
When the sheriff serves the writ to the garnishee, a garnishment lien attaches to the debtor's nonexempt property or money up to the amount of the judgment. If the garnishee fails to hold the property for the garnishor, then the garnishee will be liable to the creditor for the amount of the garnishment.
Another potential liability of the garnishee would be for 3rd party claims for the debtor's property or money. If the 3rd party prevailed in a suit against the garnishee, the garnishee may have to pay twice — to the creditor and to the 3rd party. To prevent this, the garnishee should interplead the 3rd party in the garnishment action so that it is bound by any judgment.
If the garnishment was obtained before the judgment that the debtor owes money to the creditor (aka prejudgment garnishment), then the property is held until after the judgment. If the creditor wins, then the garnished property is turned over to the creditor. However, if the debtor prevails, then not only does the debtor get his property back, but the creditor may be liable for damages to the debtor.
Any property or money returned to the debtor or used for the benefit of the debtor before the serving of the writ will not be covered by the garnishment. So if the debtor has a checking account that a creditor garnishes, only the amount left in the checking account at the moment that the writ of garnishment is served will be covered by it.
A consequence of any garnishment is that as the garnishee turns over property to the creditor, the garnishee's liability to the debtor is reduced by the amount of the property given to the creditor; likewise, the debtor's liability to the creditor is reduced by the same amount. If the garnishee is required by state law to give notice to the debtor about the garnishment or fails to apply known exemptions to the debtor's property, then the garnishee may be liable to the debtor for the failure to act.
Wage Garnishment Laws
Generally, a writ of garnishment only attaches to the property held by the garnishee at the moment the summons is served. For instance, for a garnishment of a bank account, any deposits of money made after the writ is served are not covered by the garnishment. Hence, if a creditor wanted to attach wages, she would have to obtain a writ for each pay period, since the garnishee has no liability to the debtor for wages until the debtor has actually worked and earned the money.
To facilitate wage garnishment, many states have enacted laws that allow a creditor to garnish the future wages of debtors with only a single writ of garnishment until the judgment is satisfied.
However, since people depend on their wages to live, both state and federal laws limit the amount of wages that can be garnished and federal law prevents the employer from firing the employee because of the garnishment. Federal law — the Consumer Credit Protection Act (US CODE: Title 15,CHAPTER 41 — CONSUMER CREDIT PROTECTION, specifically: US CODE: Title 15,1673. Restriction on garnishment) — limits the garnishment of wages to the lesser of 25% of the debtor's disposable income or the amount by which the debtor's income exceeds 30 times the federal minimum wage. However, for domestic support orders, the limit is 65% of disposable income. States may also pass limits on garnishment, but only by limiting the garnishment even more; the Supremacy Clause prevents states from preempting the federal law. Even so, increases in the federal minimum wage have not kept pace with inflation, leaving the debtors with little to live on.
How Garnishment is Done in Georgia
Discover Card won a judgment for $2401 in 2004 against a cardholder for unpaid credit card debt. A law firm collecting on the debt executed a garnishment order in 2010 and collected a total of $3312, which included interest and fees. The way the garnishment is collected is that the debtor sends the payment to the county court clerk who then sends the payment to the debt collector. However, the court clerk took an unreasonable amount of time to send the payments to the law firm, so the law firm charged an additional $970 — not to the court who held up the payment, but to the debtor — and attempted to collect it through another garnishment order that was granted in April 2013. The law firm could charge the additional $970 because it was permitted by Georgia law to assess additional interest even though the funds were held up by the court!
Of course, one would have to wonder how a government agency could be so incompetent as to be unable to timely remit the received payments to the proper recipients or why the Georgia legislature decided that the debtor should pay for the incompetence of its own courts.
Consider the endless possibility: the law firm gets another garnishment order from the very same court that was dilatory in remitting the payments to the law firm in the 1st place, remittance is delayed again, so the cycle repeats, and so on.
The court should be forced to pay the interest; otherwise, it has no incentive to rectify its own incompetency. Judging from the amount of interest charged for the court's delinquency, the court must have been several years behind in remittances.
This case illustrates the importance of trying to avoid a garnishment action and, if the debt is paid, obtaining proof of such; otherwise, the debt may come back to haunt you.
Source (accessed 8/21/2014): The $2,400 debt that wouldn't die - MarketWatch
Tips for Stopping the Garnishment of your Wages
If you owe a debt and you are able to pay it, then pay it. But if you are unable to pay it, and the creditor or debt collector sues you to garnish your wages, it may leave you with less than you need to live.
You may be able to stop the garnishment of your wages by simply showing up in court and demanding proof of your debt. According to this article, More Struggling Borrowers Face Pay Garnishment - NYTimes.com, many garnishors are debt collectors who have bought the debt from the originators of the loan, but often don't have the original proof of the debt. Debt collectors frequently file lawsuits with the expectation that the debtor will not show up in court, which is usually the case. However, if you go to court and demand proof of the debt and they can't provide the proof, then they will not be able to garnish your wages.
One thing pointed out by the article is that sometimes collection lawyers try to reach the debtor before they walk into the courtroom to get them to sign a settlement agreement. Never sign these agreements since they will almost certainly be against your interest!
The legal system of this country is based on an adversarial system, making the legal process so expensive. Creditors and debt collectors use the law to their advantage, so you should not feel guilty about doing the same thing. Indeed, the credit industry lobbied Congress furiously to prevent the creation of a Consumer Financial Protection Agency simply because it is so profitable to take advantage of people who are down on their luck or who are unsophisticated in money matters.
And most of those big profits come from the interest rates, penalty fees, and legal costs charged by creditors that are much greater than their actual costs. Indeed, attorney fees are often greater than $1,000, even though the only thing they — or their legal secretaries — do is file the lawsuit, which is little more than filling out a simple form and mailing it (or filing it electronically). So there is no reason why you should fill guilty about using the law to your advantage. By lending money, creditors take the risk that they will not be paid. They gladly assume the risk because it is so profitable.
This strategy may not work for various reasons, but it would cost you little or nothing by trying. You could get a lawyer, but, let's face it, if you could afford a lawyer, you could probably afford to pay your debt.
A new federal rule took effect on May 1, 2011, which will prevent banks from freezing the bank accounts of low income recipients of federal payments, such as Social Security payments for retirement or disability or certain federal benefits for veterans and the poor that are generally exempt from garnishment or attachment. Although such payments were previously protected, banks that received garnishment orders would generally freeze the accounts containing these protected payments, anyway. Oftentimes, the account holder must hire a lawyer to unfreeze the account. According to the National Consumer Law Center, more than 100,000 bank accounts of low income beneficiaries are frozen by the banks containing protected payments.
Banks have argued that they cannot know the source of the funds in the accounts and that they may be held in contempt by the courts that issued the garnishment order if they fail to freeze the account.
The new rule will require government agencies to add electronic tags to protected funds that are electronically deposited in banks and they will be required to exempt tagged deposits for up to 2 months after the deposit from garnishment. Although paper checks cannot be tagged, all new recipients of federal benefits will only receive electronic deposits, as of May 1, and all recipients will only receive electronic deposits by early 2013. The new rule also protects banks against legal liability to the creditors for not garnishing the funds.
Source: Bank Customers Win One (Soon) - NYTimes.com