By: Attorney Meghan P. MacKelly, Post Judgment Litigation Supervisor
Although an “earnings” or “wage” garnishment is a rather customary remedy for collecting a judgment against a debtor, “non-earnings” or “non-wage” garnishments are frequently necessary for an effective debt recovery strategy. In a society where there is an increasing number of ways to derive income, creditors should be familiar with this garnishment of funds or property other than earnings.
What Is a “Non-Earnings” Garnishment? Unlike an earnings garnishment, which can recover debt through intercepting wages, salary, and commissions, a non-earnings garnishment recovers debt through a debtor’s other property, such as bank accounts, rental income, and other “non-wage” earnings.
After a creditor secures a judgment against a debtor, the creditor may proceed with a non-earnings garnishment action against a third party (i.e., a “garnishee defendant”) to collect money or property owed to a debtor. In other words, when a third party possesses a debtor’s property (e.g., a bank possessing a debtor’s money) or owes payments to a debtor (e.g., a tenant’s rental payments to a landlord or a contractor’s payments to a subcontractor), a non-earnings garnishment allows a creditor to intervene in these relationships to divert the money to the creditor.
Unlike earnings garnishments, neither poverty guidelines nor the receipt of public assistance limit the ability to commence a non-earnings garnishment action. However, non-earnings garnishments come with their own individual limitations or exemptions, which will be discussed in detail below.
Types of Non-Earnings Garnishments. Typically, there are three types of non-earnings garnishments: (1) bank; (2) rent; and (3) “self-employment” or “contract” income.
Bank Garnishments. Garnishment of bank accounts involves collecting the debt from the funds in a debtor’s depository accounts (including the contents of a safe deposit box). The creditor does not need to know the actual account numbers. Usually, knowing the bank name is sufficient to attach the bank funds.
A $5,000 exemption exists for personal bank accounts. This exemption protects the debtor’s first $5,000 of aggregate deposits. Also, some funds (e.g., social security) are completely exempt from a bank garnishment. After all exempt funds are protected, the remaining balance is subject to the garnishment. However, business bank accounts have no exemption and the entire amount in the depository account at the time of service is subject to garnishment.
When the garnishment action is served on the bank, the funds in the debtor’s accounts are “frozen” at least up to the amount of the judgment, depending on bank policy. Accordingly, to prevent the debtor from removing the money or interfering with the garnishment, the bank should be served before the debtor is served. It is important to note that only funds on hand when the bank is served are subject to this garnishment.
Rent Garnishments. If the judgment debtor receives income from rental property, a garnishment may be filed against the tenant. The garnishment of rental income may be continuous and “catches” all the monies “due and owing.” In other words, the creditor does not need to repeatedly file a garnishment to capture each payment from the tenant. The garnishment may stay in place to obtain subsequent rent payments until the debt is satisfied or for the remaining term of the lease between the garnishee defendant and the debtor, whichever comes first.
This process may be challenging as many tenants may be apprehensive about paying rent to anyone other than their landlord. However, rent garnishments are usually worth the increased effort because legal action may eventually lead to a formal order to pay rent and often motivates the debtor to pay voluntarily.
Garnishment of Contract Income. Other income that may be intercepted is income for which a debtor may receive an IRS Form 1099, as is the case with self-employment or “independent contractor” work. This is often the case when the debtor is a construction subcontractor or a self-employed plumber, real estate agent, or other trade.
An advantage to this type of garnishment is that payments from the garnishee defendant to the debtor tend to be significant and the exemptions that exist with wage garnishment do not exist in these scenarios. Unlike a wage garnishment, this is a one time “catch all” garnishment. Thus, timing is critical to the collection because the garnishment action must be served on the garnishee defendant during the period when contract monies are due but have yet to be paid to the debtor. Even if the window of time is small and seemingly inconvenient, garnishment can be effective to legally force involuntary payments and sometimes results in voluntary payment arrangements with the debtor.
Procedure. Much of the success of a non-earnings garnishment depends on following the specified procedures and strategic timing. Initiating non-earnings garnishments involves our attorneys drafting a non-earnings garnishment summons and complaint, filing the papers with the court, and paying a filing fee. Then, a process server must serve the summons and complaint on the judgment debtor and the garnishee defendants.
As a general rule, it is in the creditor’s best interest for the garnishee defendants to be served before the debtor is served. As noted above, this method can limit the debtor’s ability to interfere with the garnishment’s collection. Further, the timing of service may also affect how collectible the garnishment will be, such as in the case of intercepting payments to independent contractors, or rental property owners.
The garnishee defendant must file an answer to the non-earnings garnishment within 20 days of service; or in some small claims courts appear at a return date. If the garnishee defendant fails to file an answer within the required 20 days or fails to appear at the return date, the creditor may receive a judgment against the garnishee defendant in the amount of money requested in the non-earnings garnishment complaint. If the garnishee defendant timely files an answer and the creditor disagrees with the representations in the answer, the creditor may file an objection to the answer and request a hearing in which the court will determine the validity of the parties’ positions. If the garnishee defendant timely files an answer and the creditor agrees with the answer, the creditor will obtain an order for specific payments from the garnishee defendant.
The costs involved in filing a non-earnings garnishment action include the filing fee referenced above, which varies from small claims to large claims court, and from county to county. Also, a service fee exists for serving the summons and complaint on the defendant and garnishee defendant. Furthermore, a $3 witness fee must be served on each garnishee defendant. The filing fee and up to $40 in disbursements are recoverable. Any disbursement amounts above $40 are non-recoverable and cannot be added to the original judgment amount.
Conclusion. Non-earnings garnishments are an invaluable alternative to the traditional wage garnishment. This article has touched on only the most common forms of non-earnings garnishments. However, we have a team of lawyers and staff whose primary focus is to handle all garnishment matters. Therefore, if you have questions about starting a garnishment or strategizing about your garnishment options, please contact our office.