What Can Creditors Do To You After Obtaining A Money Judgment?
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In my previous two articles, I discussed how you should respond to debt collection calls letters, and lawsuits. In this article, I am assuming that a money judgment has been entered against you, either by default because you did not answer the complaint filed against you, or because the creditor was successful in court in proving its claims against you. Now that the creditor has the keys to the State’s judicial collection machinery (in the form of a money judgment against you), what can the creditor do to collect, and what can you do to protect your earnings and property? It is important to understand what the creditor can do to you in order to consider your options for settlement, credit counseling, bankruptcy, and lifestyle adjustment.
Creditors want easy money, and will first pursue cash held for you by third parties. Judgment creditors can obtain a writ for wage garnishment from the court, and deliver that writ to the sheriff along with a fee. The sheriff will then serve the writ on your employer, requiring your employer to withhold and turn over the garnishable amount from your wages. If the employer does not comply with the writ, the employer would be personally liable to pay the withholding amount. So your employer must comply with the writ.
There are two sets of limits on wage garnishment, requiring the employer to apply rather complex mathematics. The Federal Wage Garnishment Law limits wage garnishment in two ways. First, employees who make “disposable income” of less than 30 times the federal minimum wage per week cannot be garnished at all. Disposable income is gross pay minus mandatory withholding. At the current federal minimum wage of $7.25 per hour, nothing can be garnished if your disposable earnings are less than $217.50 per week. If you are paid every two weeks, the floor is doubled to $435.00.
If you make more than the $217.50 per week floor, the creditor can garnish all of your disposable earnings above $217.50 per week up to the ceiling of 25% of your disposable earnings. To calculate the garnishment amount, the employer must pay over to the sheriff from your wages the lesser of (a) amount of your disposable earnings above $217.50 per week, or (b) 25% of your total disposable earnings per week. For example, if your disposable earnings for the week are $300, the employer can garnish the lesser of (a) $300-217.50= $82.50 or (b) 25% x $300 = $75, which would be $75. Higher limits apply to spousal and child support claims, and different limits apply to certain governmental creditors (primarily taxes and student loans), which is not covered by the general federal garnishment limits. You will be paid the balance of your wages.
State law may further limit wage garnishment, but cannot allow creditors to garnish more than is allowed by the federal law. This website contains information on garnishment limits by state. Some states do not provide any additional protection for debtors, while four states (Pennsylvania, North Carolina, South Carolina and Texas) prevent all wage garnishment. In my State, New York, wage garnishment is limited to 10% of gross wages. In the example above, if the debtor’s gross wages were $330 (because the employee had $30 of mandatory withholding), the maximum garnishment amount would be $33 rather than $75 under the federal limits. Thus, you need to determine your federal garnishment limit and any state garnishment limit to know what can be withheld from your wages.
The garnishment limits are total maximums, not per creditor. If five creditors are garnishing, the first garnishing creditor gets paid, while the others have to wait until that first creditor’s judgment is satisfied before they get anything.
Many employers miscalculate the garnishment amounts, and turnover too much. You should check your employer’s calculations to make sure that they are not over-garnishing your wages.
Bank Account Garnishment
Bank accounts are another easy source for grabbing your money. Debt collectors have ingenious ways of finding your bank accounts and garnishing them. Once the bank receives a writ of garnishment, your account (or safe deposit box) will be immediately frozen. Judgment debtors are often forced out of the banking system, because they can quickly lose all of their money in a bank account garnishment. Before a judgment is entered you should consider removing your garnishable funds from your bank accounts, and keeping those funds in a safe place.
Special Exemption for Social Security Payments
Social Security payments are an important exception to the rules on bank account garnishment. Under federal law, Social security payments are permanently and totally exempt from garnishment. Anyone who is at risk of garnishment should keep their social security payments in a separate bank account containing only social security benefits, so that it will be easy to establish that all of the money in the account is social security. If social security payments are commingled with non-exempt funds, it may be difficult to establish what portion of the account consists of social security payments and what portion consists of other money that is subject to garnishment.
Execution on your Assets, and Exemptions to Protect Your Assets
Judgment creditors can get a writ ordering the sheriff to levy (physically seize from you) and sell any of your property that is not exempt from execution. If you assert your rights, judgment creditors cannot seize or sell your exempt assets. Each state has its own list of exemptions. Exemptions usually have dollar limits. If the property is worth more than the exempt limit, the property can be sold, with the exemption amount paid to the debtor and the balance paid to the creditor. Creditors cannot levy and sell property that is worth less than the exemption amount.
Some states have generous exemptions, and some states have very limited exemptions. This website contains information on garnishment limits by state. You should look up and be prepared to cite the actual statute from your state that provides you with a garnishment exemption.
Unless you own some quite valuable personal property, it is rare for creditors to spend the money to get the sheriff to levy and sell your consumer goods. Your clothing, furniture, and personal effects are probably safe. You need to worry if you have things like valuable antiques, valuable cars and real property that are worth more than the sum of the liens against the property and the state exemption amount. It is worth looking at your state’s exemption list to know your exemption amounts, because the exemptions will also become important in considering the bankruptcy alternative.
The largest exemption in many states is for a homestead on real property that the judgment debtor lives on. In most states, creditors cannot force the sale of a homestead unless the value exceeds the sum of the liens against the property and the homestead exemption amount. Instead, creditors will likely place judicial liens against your property by filing the judgment in the county real estate records, which will impair your ability to sell the property without paying off the liens.
Debtors who are subject to a judgment must be extremely careful in buying real property while the judgment is outstanding, because a judgment lien may automatically attach to any real property purchased in a county where the judgment is filed (and that judgment lien may not be avoidable in bankruptcy, a topic for later discussion).
Outstanding judgments may make it extremely difficult for you to live your life. You may live in fear of wage garnishment if you are working, you may have to avoid the banking system to be safe from bank account garnishments, you will worry about property executions, and you may not be able to buy or maintain a home.
On the other hand, some people may have no reason for worry because they are “judgment proof” – they don’t earn wages above the exempt amount (or live on only exempt social security), and they do not have or plan to get any executable assets or real property. For example, retired debtors owning only exempt assets and living on social security may be “judgment proof.” Others may be judgment proof now, but have the hope of improving financial circumstances. In my next article, I will discuss the rights of secured creditors, and will follow that with an article explaining how you should begin to analyze your financial situation in order to develop a plan to address your financial problems.
About Gregory Germain
This series of articles is written by guest columnist Gregory Germain, a lawyer who has practiced and taught bankruptcy law for 35 years. He is a Professor of Law at Syracuse University College of Law, and has represented hundreds of consumers in bankruptcy cases as part of the Syracuse University Bankruptcy Clinic and Pro Bono Bankruptcy Program during the past decade. Professor Germain will offer general guidance to consumers who are dealing with financial problems. Readers should understand that he is not providing individual legal advice. Readers may have special needs or problems that will not be addressed in this series of articles. Readers in need of specialized legal advice should consult a lawyer who can evaluate their individual needs and circumstances.
Opinions & perspectives expressed in this article are those of the guest contributor and not necessarily Pocket Your Dollars.