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Archive for the ‘creditor judgment’ tag

Protecting Your Pandemic Relief Payment from Creditors

April 27th, 2020 at 7:00 am

Your $1,200 or so coronavirus relief payment is subject to seizure by your creditors, if they have a garnishment order on your bank account.  

 

Our blog post four weeks ago was about the $1,200 pandemic relief payments going out to most U.S. adults. The CARES Act explicitly protected these payments from seizure for certain governmental debts. Generally, the payments can’t be reduced or taken to pay past-due federal taxes and student loans. They can be for past-due child support obligations.

But the CARES Act made no mention of protection from debts owed to non-governmental creditors. So the relief payments are generally subject to possible seizure by your creditors. Today we address this concern about private creditors’ access to these payments.

There are two classes of creditors at play:

1)      Setoffs by your own bank or credit union for a debt you owe to it

2)      Garnishment by other creditors which have a judgment against you

Next week we address setoffs by for fees or other debts owed to your own financial institution. Today is about protecting your relief payment from other creditors.

Judgments and Garnishment Orders

Generally a non-governmental creditor can’t take money from your bank account without a court’s garnishment order. And to get a garnishment order a creditor virtually always must first sue you and get a judgment. (This assumes that the creditor isn’t a governmental agency or the bank/credit union itself.) If a creditor has an active garnishment order on your bank/credit union account, your relief payment would arrive there and go to pay the debt instead of giving you the financial relief you need.

Do You have a Garnishment Order on Your Bank/Credit Union Account?

This question is not necessarily so easy to answer, for a number of reasons.

First, although most of the time you’d know that you received lawsuit papers, not necessarily. You may have not noticed it in the mail.  It may not have looked much different from other collections paperwork. If you’ve moved a lot, it’s possible you didn’t even get the lawsuit papers.

Second, you may not know that the lawsuit resulted in a judgment. If you didn’t respond within a very short time to the lawsuit papers, you probably lost the lawsuit by default. That almost always immediately turns into a judgment—a court decision that you owe the debt. The judgment gives the creditor power to—among other things—garnish your bank account.  

Third, you may not know about the garnishment order, or the pertinent details about it. For example, you may think it only applies to your paycheck, not your bank account. Or the bank garnishment order may have happened a while ago and you don’t realize that it’s still active.   

Fourth, the laws about lawsuits, judgments, and garnishments are detailed, complicated, and different in every state. And they change (sometimes in a good way, as we show below.)  So what you may have heard in one situation may not apply at all to you regarding these relief payments.

Finding Out If You Have a Bank Garnishment Order

Some common sense questions you should ask yourself. Have you:

  • ever received lawsuit papers and then did not fully resolve the debt?
  • had any kind of creditor garnishment or seizure, even if unrelated to your bank/credit union account?
  • had anything repossessed, especially a vehicle, where you may still owe a balance?
  • gone through a real estate foreclosure in which you may still owe a money to junior mortgage or other lienholder?
  • moved from another state and thought you left unresolved debts behind?

In these and similar situations you may have a judgment against you and a garnishment on your bank/credit union account. So your relief money would likely go to pay the judgment before you’d get any of it.

Is there any more direct way of finding out if there’s a garnishment order? Yes, you could contact your bank/credit union and ask. The problem is that in the midst of the pandemic you may well have trouble getting anyone to answer. More to the point, you’d likely have trouble getting through to somebody who could accurately and reliably answer this question.

A debtors’ rights or bankruptcy lawyer could help. He or she likely knows the right people to call at your financial institution, including that institution’s lawyers.

 What To Do If You Do Have a Garnishment Order

First, every state has exemptions that you may be able to claim to protect the relief money from garnishment. Each state has different procedures for claiming those exemptions. An extra challenge during the pandemic is getting access the courts to assert your exemption rights. Many courts are physically closed, you may be subject to a stay-at-home order, and contacting a lawyer may be harder. But if you don’t want to lose your relief money, you’ll likely need to assert your exemption protections.

Second, you may want to consider some other tactical steps:

  • If a garnishment order has expired and the creditor needs to renew it, you may have time to take the money out of the account immediately after it arrives.
  • Has the IRS has not yet direct-deposited your payment? Then you may be able to redirect it to an account at a different (non-garnished) financial institution. Go to the Get My Payment webpage to provide new bank account routing information (if it’s not too late).
  • Are you currently waiting to receive the relief payment in paper checks? Consider NOT providing the IRS direct deposit information even though that may delay the payment. (Here’s an article with the dates that the IRS is mailing out paper checks, based on income.)

Third, a number of states are issuing orders to prevent garnishments of bank accounts:

California Governor’s Executive Order N-57-20District of Columbia Act 23-286

Illinois Governor’s Executive Order 2020-25

• Indiana Supreme Court Order in case nos. 20S-MS-258 and 20S-CB-123

Massachusetts emergency regulation 940 C.M.R. 35.00

Nebraska Attorney General Warning

• New York Attorney General Guidance on CARES Act Payments

• Oregon Governor’s Executive Order 20-18

• Texas Supreme Court Tenth Emergency Order Regarding the Covid-19 State of Disaster

Virginia Supreme Court Order Extending Declaration of Judicial Emergency

• Washington State Governor’s Proclamation 20-49 Garnishments and Accrual of Interest

This list is expanding all the time. So if your state isn’t listed here it may have acted after this writing (4/27/20).

This IS Complicated

Garnishment law is detailed and not at all straightforward. And that was before all the legal and serious practical complications caused by the pandemic. So if at all possible, get through to a debtor’s rights or bankruptcy lawyer. We have spent our professional lives helping people deal with garnishments and protect their assets from creditors. This is just another twist on what we do all day every day.

 

Prevent Future Judgment Liens

August 26th, 2019 at 7:00 am

Bankruptcy can prevent future judgment liens. It usually stops a lawsuit from turning into a judgment, and then a judgment lien on your home. 


Judgment Liens Are Dangerous

Our last blog post was about how filing bankruptcy can sometimes remove, or “avoid,” a judgment lien from your home. This is a great potential benefit of bankruptcy if a judgment lien has already been recorded.

But it is often much better to file a bankruptcy case before a judgment lien hits your home’s title. Here are a few of the practical reasons why:

  • You have to meet certain strict conditions to be able to avoid the judgment lien. If you don’t meet them, even bankruptcy won’t get rid of that lien on your home. You may have to pay all or part of the debt in spite of filing bankruptcy.
  • Even if you succeed in avoiding the lien in your bankruptcy case, it is an extra step that can cost you more. And the cost can go up substantially if the creditor fights your lawyer’s efforts to avoid the lien. Besides higher lawyer fees, you may have to pay for a home appraisal and for the court testimony of the appraiser.
  • The existence of a judgment lien adds uncertainty, and thus some extra anxiety, to your bankruptcy process. The goal of bankruptcy is relief. So it’s better to prevent a judgment lien from hitting your home than messing with it after it has hit.

Judgment Liens Are Preventable

Filing bankruptcy usually stops an ongoing lawsuit against you from turning into a judgment. Bankruptcy’s “automatic stay” immediately stops “the… continuation… of a judicial, administrative, or other action or proceeding against the debtor…  .” Section 362(a)(1) of the U.S. Bankruptcy Code.

Filing bankruptcy also usually prevents future lawsuits against you from being filed much less turning into judgments. The automatic stay” immediately stops “the commencement… of a judicial, administrative, or other action or proceeding against the debtor…  .” Section 362(a)(1) of the U.S. Bankruptcy Code.

The exceptions are debts that cannot be written off (“discharged”) in bankruptcy, such as certain ones based on fraud, income taxes, child or spousal support, or criminal behavior. But bankruptcy does discharge most debts. So filing bankruptcy will stop ongoing and future lawsuits on all those debts. And it will prevent those debts from turning into dangerous judgment liens on your home.

The Timing Can Be Crucial

Filing bankruptcy triggers the protections of the automatic stay. It’s too late once a judgment lien has already been recorded. (Except if that lien qualifies for getting “avoided.”)

It’s safest to file your bankruptcy case before you’ve been sued by a creditor. Once you’ve been sued, state laws differ about how quickly that lawsuit will turn into a judgment, and then a judgment lien. State laws also differ about what you and your lawyer can do to slow down that process. Intervening to slow it down may make sense so that you can file the bankruptcy case before a judgment lien can get recorded.

 

The Surprising Benefits: Removing a Judgment Lien on Your Home

May 7th, 2018 at 7:00 am

Bankruptcy usually does not get rid of liens against your assets. However, in many situations you can “avoid” a judgment lien on your home. 


We’re on a series of blog posts about the powerful but less obvious benefits of bankruptcy. Bankruptcy can do much more than just give you immediate and long-term relief from your debts. Today we get into the extremely helpful way bankruptcy can take judgment liens off the title to your home.

The Problem Begging for a Solution

When a creditor sues you, most often it gets a judgment against you. If you do not respond to the lawsuit, the creditor gets a default judgment. That’s a court determination that you owe the debt. The judgment also usually includes substantial fees related to the lawsuit that you then also legally owe.

Even if you do respond, formally or informally, to the lawsuit and work out some kind of deal with the creditor, that deal often includes the creditor getting a judgment against you.

Either way, the creditor’s judgment against you usually results in a judgment lien against your home. That’s often true whether you owned a home at that time or not. For example, if you bought a home years later, a previously entered judgment lien could attach to it. Or if you are buying a home on a contract with the seller, including a rent-to-own, the judgment could attach to your right to the home. Sometimes a new or old judgment lien could even attach to your rights under a residential lease.

Any such judgment lien is separate from the debt you owe to that creditor. Bankruptcy can usually write off (“discharge”) debts but not liens. For example, if you are making payments on a vehicle, bankruptcy can discharge the debt but does not affect the lien that the creditor has on the vehicle. So unless you surrender the vehicle, you have to pay for the right to keep the vehicle. Similarly, bankruptcy may write off the debt that resulted in the judgment, but that could still leave the judgment lien on your home. This is a significant problem because you would likely have to pay to get rid of the lien when you sell or refinance the home.

Judgment Lien “Avoidance”

However, bankruptcy law does have a solution that works in many situations. As long as you meet certain conditions, you can “avoid”—undo—a judgment lien as part of your bankruptcy case. You may well be able to meet these conditions.

The Conditions for Judgment Liens “Avoidance”

You can take a judgment lien off your home by meeting the following conditions:

  • The judgment lien at issue is attached is your “homestead.” That’s the real estate or other property right that the homestead exemption protects for you under the law.
  • That lien must be a “judicial lien.” That’s defined in the U.S. Bankruptcy Code as “a lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding.”
  • This “judicial lien” cannot be for child or spousal support or for a mortgage foreclosure.
  • The judgment lien must “impair” the homestead exemption. This usually means that the lien cuts into the equity protected by the applicable homestead exemption.  

See Section 522(f)(1)(A) of the  Bankruptcy Code.

Example

Assume the following:

  • You were previously sued by a collection agency on a medical debt for $15,000. You didn’t respond because you knew you owed the debt. So the collection agency got a judgment of $15,000 plus another $2,500 for costs and fees, totaling $17,500. Then a judgment lien in that amount was recorded against your home.
  • You file a Chapter 7 “straight bankruptcy” case. It will discharge—forever write off-the $17,500 debt. But without lien avoidance the judgment lien would survive.
  • You owe a $200,000 mortgage on your home, which is worth $210,000. So you have equity of $10,000. The judgment lien attaches to that $10,000 of equity.
  • In your state you have a $25,000 homestead exemption—protecting the first $25,000 of equity in your home. Since you have less equity than that, the full $10,000 of your equity is protected by your homestead exemption.

The judgment lien “impairs” (or absorbs) the full $10,000 of equity in your home. This equity is all protected by the applicable homestead exemption. Therefore, the judgment lien impairs the homestead exemption.

Because all of the conditions are met in this example, your bankruptcy lawyer could successfully file a motion to “avoid” the judgment lien. You’d permanently be rid of both the $17,500 debt and the judgment lien on your home.

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210-342-3400

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