Creditors' Rights Flashcards
Overview: Writ of Garnishment
This is a method for creditors to obtain payment from debtors who don’t pay. There are two types:
- Period Garnishment: sent to those who make periodic payments to a debtor (employers, etc.)
- Non-Periodic Garnishment: sent to the debtor’s bank
- If it is a jointly-owned bank, the creditor can only recover half of the value because it is presumed the other person has an interest in the account
What is the garnishment process?
- Creditor files a verified statement with the clerk, saying they have an unpaid judgment in a certain amount, and that they have reason to know that a third-party owes the debtor something (i.e., employer)
The collection efforts can begin 21 days after entry of the judgment. SOL: 10 years
- Court enters a writ of garnishment, which Plaintiff must serve on Garnishee (i.e., employer/bank) within 182 days.
- Within 7 days of being served, the garnishee must serve the debtor
- Garnishee must file a disclosure statement with the court within 14 days after service, which states how often payments are made and how it is paid.
Note: the consequences if the garnishee does not file the disclosure statement (next card)
What happens if Garnishee does not follow the procedure?
- The creditor must send the garnishee another notice, giving them 28 days to respond to the notice.
- If garnishee still fails to respond, the creditor may ask for a default judgment to be entered against the garnishee. A copy MUST be sent to the garnishee.
- Garnishee can obviously go after debtor separately - If garnishee sends disclosure certifying they will withhold payments, at any time before the DJ is entered, it must not be entered.
[Note the ways a garnishee can set the DJ aside]
How can a DJ against the garnishee be set aside?
- Garnishee can file a motion within 21 days of DJ showing their failure to comply was a mistake/inadvertent, and that they will immediately begin to comply with the garnishment
- Garnishee shows they did not owe the debtor any wages
- Garnishee shows they were not served properly
- Garnishee shows the notice for their failure to comply was materially inaccurate
How much can the creditor garnish?
Creditors are allowed to garnish the lesser of:
- Up to 25% of disposable income; or
- Amount of debtor’s weekly disposable income that exceeds 30x the minimum wage
It’s usually going to be the first one.
When can a creditor NOT garnish the debtor’s money?
- Debtor HAS filed for bankruptcy
- Judgment was paid in full
- Garnishment or process was invalid/improper
- Debtor’s account has SS funds (you can take the other funds in the account).
- Public Employment Pension benefits can be garnished
What if there is an installment payment order from the court?
An instalment payment order protects only the wages of the defendant, and not any other asset.
If the defendant is complying with an instalment order, there shall be no issuance of writs of garnishment for work/labor wages.
EX: Defendant is complying with an instalment order. Bank wants to garnish his new employment wages and his tax returns. They cannot garnish his new wages (because he is complying), but they can garnish his tax returns.
What if the Debtor transfers all of their funds into another account?
Uniform Voidable Transactions Act
If the debtor transfers funds, and creditor can prove, by POE, that debtor intended to hinder, delay, or defraud the creditor, that transfer is voidable as to the creditor.
Helpful Factors:
- Was the transfer to a relative/partner?
- Did debtor retain control after the transfer?
- Was the transfer hidden?
- Was the transfer a substantial amount of their assets?
Order of Priority: Who does a Garnishee pay first?
First come, first serve.
Garnishments are generally paid in the order received by the garnishee.
Challenges
The judgment debtor can file objections to garnishments, but they must be based on the actual garnishment proceeding itself.
Cannot base an objection on someone’s financial hardships/inability to pay.
Rights of a Defendant: Termination of Employment
An employer cannot terminate a debtor’s employment if there is a wage garnishment order.
Federal: Debtor is not protected if there is more than one wage garnishment order.
MI: Employer cannot fire, discipline, or refuse to hire someone because of a wage garnishment.
Writ of Execution: Everything
A writ of execution allows the sheriff/bailiff to seize property, and pay the proceeds to the plaintiff. The judgement must be entered by the court, authorizing the sheriff/bailiff to execute upon it.
- Personal property is seized first
- Then real property (only non-exempt property can be levied and sold - i.e., not JT/TBE).
Proceeds are first used to pay costs of levy and execution, then to judgment creditor, and excess goes to the judgment debtor.
An execution order expires after 90 days.
Ex: Creditor has judgment against a debtor who owns a vehicle. Creditor may seek order of seizure from the court. Court will collect the property, sell it, and proceeds will be applied to the judgment balance.
