Garnishment

Garnishment in Minnesota

What is garnishment?

Debt collectors are allowed to garnish a consumer's bank account and wages to recover unpaid debts. Although the law permits garnishment before the entry of judgment in limited circumstances, the majority of garnishment in Minnesota occurs after a court judgment has been entered. The law provides strict procedures that a collector must follow and if they foul up the process, their garnishment may be wrongful.

To initiate a bank garnishment in Minnesota, a debt collector first sends a garnishment summons to the bank. The bank is required to seize all funds in the consumer's bank account on the day they process the garnishment summons. Consumers do not get notice of the garnishment until after the funds have been seized, which unfortunately can result in bounced checks and overdraft fees. In contrast, a wage garnishment is initiated by first sending a notice of intent to garnish to the consumer. The debt collector must then wait 10 days before sending a garnishment summons to the consumer's employer. Upon receipt of the garnishment summons, an employer must seize 25% of the consumer's after tax earnings for each pay period until the debt is satisfied.

What to do if you're being garnished

First, determine if any portion of the funds that were seized are exempt. Certain sources of funds are exempt from garnishment in Minnesota. For example, a debt collector may not keep most forms of need-based government aid, such as social security or energy assistance. In addition, a debt collector can only keep up to 25% of your wages, even after you deposited them in your bank account. Minnesota law also provides that child support, some insurance settlement proceeds, and many pension plans are exempt from garnishment. This is not an exhaustive list of exemptions and you should consult with a consumer lawyer to determine what, if any, exemptions you may claim. A consumer lawyer can also help you navigate the process to claim an exemption and get your exempt funds back. It is critical to act quickly because Minnesota law provides very stringent deadlines for claiming an exemption and if you fail to act in the required time, you may lose your ability to claim an exemption.

Another thing to consider if your bank account has been garnished is whether any of the funds that were seized belong to a joint account holder, such as a spouse or child, who has nothing to do with your underlying debt. Under current Minnesota case law, a debt collector may not keep funds in a bank account that were contributed by a joint account holder who is not responsible for the debt. And there is at least one Minnesota court that has ruled that a debt collector that seizes a joint account holder's funds to satisfy a debt they aren't responsible for may have violated the Fair Debt Collection Practices Act, or FDCPA, and other Minnesota laws.

You should also consider whether its possible to get the underlying court judgment vacated, or removed. If the judgment was obtained by default and you were never served with the lawsuit, you may be able to have a court vacate the judgment and return the garnished funds to you. Its also possible, under certain circumstances, to get a default judgment vacated even when you were properly served with the lawsuit. Consult with a consumer lawyer to determine whether you have a viable motion to vacate the default judgment.

If you can't get the judgment vacated, your only other options are probably to either negotiate a settlement or consider filing bankruptcy. A good consumer lawyer can walk you through you options and help you figure out the best one for your unique situation.

Claiming garnishment exemptions in Minnesota

Without question, dealing with garnishment is the most frustrating aspect of debt collection for consumers. Whether it's a bank or wage garnishment, having a debt collector seize your hard-earned money is a significant disruption to your life and can cause a great deal of stress. But there are a number of garnishment exemptions here in Minnesota, which protect your money from being garnished. In Minnesota, virtually all forms of need-based government aid are exempt from garnishment. Some of the most common forms of need based aid are social security, supplemental security income (SSI), energy assistance, and medical assistance (MA). Other types of need based aid that are exempt include: Minnesota family investment program (MFIP), emergency assistance and emergency general assistance (EA & EGA), work first program, general assistance medical care (GAMC), and Minnesota supplemental assistance (MSA). This isn't a complete list and virtually any form of government aid that you receive based on your income will probably qualify as garnishment exemptions under Minnesota law. Other common garnishment exemptions include any money you receive for child support, unemployment benefits, workers' compensation, and veterans' benefits. Some of the less common exemption sources of funds include retirement pensions (up to a certain dollar amount), disability, and insurance proceeds for damages to exempt property (usually your home or vehicle). And while it's not technically an exemption, under current Minnesota law a debt collector can't keep money from a joint account that doesn't belong to the judgment debtor.

Claiming garnishment exemptions for wage garnishment

If you're facing a wage garnishment, it's important to know that a debt collector can only take 25% of your after-tax wages. This exemption also applies if the debt collector garnishes your bank account after you deposited your pay check. And if you make only the federal minimum wage (or less) your wages are usually completely exempt from garnishment. Further, if you receive any form of need-based aid, such as those described above, your wages are totally exempt from garnishment. Minnesota law provides for this exemption if you currently receive need-based aid, or if you received any need-based aid in the last 6 months. This is an important provision for Minnesotans receiving energy assistance. Most recipients of energy assistance receive it from October through March, which make the recipient's wages exempt for the entire year if she re-enrolls in the program the following season.

To claim an exemption, it's important first to understand the garnishment process. For a wage garnishment, the debt collector must provide you with a form notifying you of their intent to garnish and an exemption form 10 days before starting the wage garnishment. To claim exemptions from a wage garnishment, all you have to do is write the appropriate garnishment exemptions on the form and mail it back to the debt collector. It's critical to do this immediately, or at least within 10 days of receiving the form. You should also provide proof of your exemption, such as your benefit notice, with the exemption form.

Claiming garnishment exemptions for bank garnishment

For a bank garnishment, you won't get notice of the garnishment until 5 days after the bank freezes your money. Fill out the garnishment exemption form that the bank and debt collector mail to you, noting the appropriate exemption. You also need to provide proof that the funds that were seized by the bank arose from an exempt source. This last point is the cause of considerable confusion for consumers. It's not enough to show the debt collector that you receive exempt money, you also have to prove that the funds that were actually seized contained this exempt money. Debt collectors will refer to this as "tracing". Sending the debt collector a copy of your bank statements that show the deposit of exempt funds, along with your benefit statements will usually accomplish the task.

If you merely mail the completed exemption form to the debt collector, and fail to provide the required tracing, the debt collector will probably object to your exemption and refuse to return your money. If this happens, you should schedule a court hearing in front of a judge to determine whether your funds are exempt. Court administration will help you set up the hearing and provide notice of the hearing to the debt collector. On the day of your hearing, be sure to bring proof of your exemption AND bank statements proving the funds seized were from an exempt source. Failure to do so could delay the court's decision or could lead to the court denying your exemption.

Finally, it's important to understand that claiming an exemption when you're not entitled to one could lead to the court ordering you to pay a penalty to the debt collector. Make sure any exemptions you claim are legitimate.

New rule protects federal benefits from bank levies

Starting May 1, 2011, banks will no longer be able to turn over some federal benefits held in their accounts to creditors. Previously, when a creditor got a bank levy against a consumer, they could take all the funds in an account, and the consumer would have to use a time-intensive process to claim a state or federal exemption to get the funds back. But in the meantime, the consumer could not access that money. The new rule issued by the U.S. Treasury Department will require banks to check, before turning funds over to a creditor, whether federal benefits (Social Security, SSI, VA benefits, etc.) were deposited into the account within the previous two months. If so, the banks will not be able to send those two months of federal benefits to the creditor. The new rule does not apply to garnishment by a child support agency.

In addition to the new protection, money not protected by the new rule may still be protected under state law. Consumers will still need to fill out the exemption notice for exempt benefits beyond the ones covered by the new rule.

One very important note--this new protection will not apply to federal benefits deposited by paper check. To get the protections, a recipient must sign up for direct deposit or a Direct Express card. Also, the protection will not apply to funds transferred to another bank account. So if you receive the money in your checking account, and transfer it to your savings account, it is no longer protected by the new rule.

A debt collector is taking my paycheck. What do I do?

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One of the most frequent reasons we get called to help people fight debt collectors is when a person's wages are taken hostage. It's called garnishment, and it's one of the most powerful ways a debt collector can get your money. A garnishment can hit unexpectedly, and can cause lots of problems, especially that you might not be able to make your bills for the next month. Here are some of the rules around garnishment, and some tips to help you deal with it.

You can't be garnished unless you've been sued

To get a wage garnishment against you, a debt collector must first sue you. They can win their case by fighting you in court, but occasionally, you didn't get notice of the lawsuit and the collector can get a default judgment because you didn't show up for court. If a debt collector takes your wages before you've been sued, it's most likely not a garnishment, and therefore is probably illegal. To see if you have a judgment against you, check out the Minnesota courts judgment search.

They can't take your whole paycheck

In Minnesota, if a debt collector wants to take your wages, it must send you a "wage exemption notice" at least 10 days before it takes your money. You may be exempt from garnishment if you received public benefits in the past six months or if you were recently released from prison). If that's the case, you must fill out the exemption notice and return it to the collector's attorney within 10 days.

If you aren't fully exempt, there are still limits to what can be taken. You can keep 75 percent of your "disposable earnings"--i.e. your gross income minus your taxes--or 40 x the minimum wage per week (currently $320).

Child support has different rules

If you are being garnished for child support, forget everything I've said. More than 50 percent of your wages can be taken, and there are very few ways to escape being garnished.

There are ways to put a stop to garnishment

One way to stop a garnishment if you haven't appeared in court yet is to reopen a default judgment. This may be something you can do on your own, but it's best to consult an attorney because it can be tricky.

It is also possible to settle the debt for less than you owe. We can help you negotiate judgments.

Another way to stop a garnishment is filing bankruptcy. Not only will a Chapter 7 or Chapter 13 bankruptcy stop wage garnishment in progress, but you also can recover money that was garnished within the last 90 days.

Joint bank account garnishment in Minnesota

Joint bank account garnishment in Minnesota has generated considerable controversy--and litigation--over the last few years. Here's what you need to know if your joint bank account has been garnished by a debt collector:

In the 2007 case of Enright v. Lehman, the Minnesota Supreme Court ruled that a creditor can only garnish money from a joint bank account that belongs to the judgment debtor. So, for example, imagine that two people, let's call them Rocco and Ani, have a joint bank account. Rocco has a judgment against him and a debt collector garnishes the joint account. Under the Court's ruling, the debt collector could only garnish money from the account that belonged to Rocco. The debt collector wouldn't be able to garnish any money in the account that belonged to Ani.

Unfortunately, the Enright decision left a number of questions unanswered. First, and most importantly, could a debt collector ever do a joint bank account garnishment when not all the account holders were judgment debtors? And if so, who was responsible for establishing what money in the account belonged to the judgment debtor--the creditor or the debtor? In a 2010 decision, the Minnesota Supreme Court answered these questions, and the answers weren't favorable to Minnesota consumers. The Court ruled that a creditor could garnish a joint account, but could only keep the money that belonged to the judgment debtor. The Court also ruled that all of the money in a joint account was presumed to belong to the judgment debtor unless he and the joint account holders showed otherwise.

But what about the non-judgment debtor account holder? Is it really fair to her to have her money frozen while the garnishment process plays out and the ownership of the money in the joint account is established? Most of you have heard of the concept of "due process". What that generally means is that before the government can deprive a person of rights or property, the person has to be given notice and an opportunity to be heard on the issue. But when a debt collector garnishes a joint bank account, the non-judgment debtor account holder doesn't get any notice about the garnishment. Only the judgment debtor gets such a notice, and the notice doesn't come until after the money has been frozen. And although Minnesota law allows non-judgment debtor account holders to be involved in the Court process, the debt collector isn't required to notify the non-judgment debtor of her right to do so.  So is depriving the non-judgment debtor account holder of her money without any notice or opportunity to be heard a violation of her Constitutional right to due process? This is a hard question with no easy answer.

Rethinking the garnishment exemption process

I'm often asked whether a creditor can garnish a bank account that contains social security (or other exempt money). The answer--at least in Minnesota--is that creditors can garnish your bank account containing exempt money. They just can't keep the exempt money if you properly claim an exemption. Unfortunately, the account can remain frozen for a couple of weeks while the exemption process plays out. Obviously, not having access to an account for a couple of weeks results in bounced checks, unpaid bills, and bank fees for most people. Despite the flaws, creditors argue that this is the fairest approach because the creditor doesn't know whether exempt money is in the account. Only the debtor has that information, so it makes sense to put the burden for proving the exemption on the debtor. While true, this argument completely ignores the role of the third party to the garnishment process--the bank. Many consumer advocates have long argued that banks get an unjustified free pass in this situation. And this argument makes some sense, especially in an age where most federal benefits are delivered electronically to a person's account. Here are some of the suggestions bouncing around:

  • Give debtors an opportunity to claim an exemption before their accounts are garnished.

  • Require banks to review the account in question, and refuse the garnishment if all the funds in it are exempt. If the exempt money is commingled with non-exempt money, the bank should allow the garnishment to reach only the non-exempt money. Banks, of course, will argue that this places too high of an administrative burden on them. But it's hard to take this argument at face-value when you consider that banks are making a bunch of money by charging consumers a fee each time their account is garnished.

  • Along the same lines as the previous suggestion, force banks to create a separate account for the exempt money. This way, it will be easy for the bank to determine if the debtor is receiving exempt money and how much.

  • Prohibit bank garnishments if the account balance is below a certain dollar amount. Creditors will obviously argue that this creates the potential for abuse by debtors, but there is some legal justification for it. For example, most states have laws that allow only a certain portion of a person's wages to be garnished. These laws recognize that people need some money to live on. Why can't we apply this principal to bank garnishments too?

I think the third option is probably the fairest compromise, and I often recommend that my clients take the initiative and open a separate account to put their exempt money into. This approach allows consumers to have unrestricted access to exempt money, minimizes the administrative burden on the bank, and still gets the creditor all the money they're entitled to.

You can sue for wrongful garnishment

The Fair Debt Collection Practices Act forbids debt collectors from taking action that they cannot legally take. This includes situations where a debt collector illegally garnishes a bank account or paycheck. I have seen a number of wrongful garnishment situations over the years. Here are a couple of the common scenarios.

Improper pre-judgment garnishment

Under Minnesota law, a collector can garnish a person's bank account or paycheck without first obtaining a court judgment. To do so, the collector first has to serve the person with a collection lawsuit. If the defendant does not answer the lawsuit within 20 days, the collector then has to send the defendant a Notice of Intent to Garnish. If the person doesn't respond to the Notice of Intent to Garnish within another 25 days, then the debt collector may start a garnishment. No court permission or oversight is required.

Debt collectors occasionally foul up this process. I've seen cases where they do a pre-judgment garnishment even though the defendant has answered the lawsuit. I've also seen cases where they garnish without sending the Notice of Intent to Garnish. In both situations, they haven't followed the pre-judgment garnishment requirements they've probably done a wrongful garnishment and violated the FDCPA.

Court judgment was vacated

Although pre-judgment garnishment is allowed in Minnesota, most garnishments happen after a court judgment has been entered. What if the court judgment is vacated, though? If the collection judgment is wiped out, then the collector's power to conduct a garnishment is wiped out. If the collector garnishes the consumer after the judgment is vacated, it almost certainly will be a wrongful garnishment and a violation of the FDCPA.

Debt was settled

A similar type of wrongful garnishment happens when the consumer negotiates a settlement or payment plan and the collector garnishes them anyways. Many settlement agreements state that as long as the consumer follows through on the settlement, no further collection action will be taken. So as long as the person honors the settlement agreement, any further garnishment will probably violate the FDCPA. You have to be careful with this, though, because occasionally collectors won't give up their right to garnish by agreeing to a settlement.

Wrongful garnishment of exempt funds

Another possible type of wrongful garnishment is when the collector knowingly garnishes exempt money in a bank account. Minnesota law protects--or exempts--certain forms of money from garnishment. Common exemptions include social security payments, disability payments, and many other forms of government assistance granted based on financial need. But just because a debt collector garnishes a bank account that contains exempt funds, doesn't mean that they've done anything illegal. You will probably have to show that the collector knew that the bank account only contained exempt funds before they did the garnishment.

There may be other illegal garnishments that don't fall into any of these categories. If you believe a collector has wrongfully garnished you, consider talking to an attorney who is knowledgeable in garnishments and the FDCPA.