In this blog, we will examine how filing a Bankruptcy petition can stop the enforcement of a court judgment. Once a creditor sues you and obtains a judgment against you there are two main ways they can enforce it: wage garnishment or by restraining a bank account. According to New York’s Civil Practice Law & Rules § 211(b), a creditor has up to 20 years to enforce a monetary judgment against a debtor. After 20 years, the money judgment is “presumed to be paid and satisfied.”

The Wage Garnishment Process

A wage garnishment requires an employer to withhold a certain amount of money from an employee’s paycheck and then send this money directly to the creditor who obtained the garnishment. The typical wage garnishment process as follows:

1. A creditor files a lawsuit against debtor and obtains a judgment.
2. The creditor’s lawyers send an employer an information subpoena, which requires the employer to reveal how many hours the debtor works and how much they make.
3. The creditor’s lawyers then sends an income execution form to a City Marshal (or County Sheriff outside of New York City).
4. The marshal or sheriff will send the debtor a copy.
5. The debtor has 20 days from receiving the income execution to pay the Marshal or Sheriff themselves.
6. If the debtor does not pay the marshal (or sheriff), the creditor can then garnish the lesser of 10% of the debtor’s gross wages or 25% of their disposable income to the extent that this amount exceeds 30% of minimum wage until the debt is paid. If your disposable income is less than 30 times minimum wage ($240), it cannot be garnished at all.

Most creditors cannot obtain an order restraining a debtor’s income until they have first sued the debtor in court and obtained a judgment. However, there are a few exceptions to this rule. Your wages can be garnished without a court judgment for: unpaid income taxes, child support arrears, court ordered child support and defaulted student loans.

The Process of Restraining A Bank Account

When a creditor has a court judgment against a debtor and they want to pressure that debtor into paying their debt, the creditor has the right under CPLR § 5222 to put a restraint on the debtor’s bank account. This means that although money can be deposited into the bank account, but the debtor is unable to withdraw money out of it. The typical restrained bank accounts (also known as frozen bank accounts) happens like this:

1. A creditor files a lawsuit against debtor and obtains a judgment.
2. The creditor must be able to identify the bank account they want to restrain. This is often easy if the debtor has paid by check.
3. The creditor’s attorney with then contact the financial institution and serve upon them a restraining notice.
4. A “Notice to Judgment Debtor or Obligor” must be sent to the judgment debtor explaining the exemptions as well as the debtor’s right to consult an attorney regarding claiming the funds as exempt.
5. After a restraining notice has been served, unless an exemption applies, the recipient of the notice should treat the assets covered by the notice as “frozen” until they either receive instructions from the court regarding the liquidation of the assets or receive notice that the judgment has been satisfied or vacated or a bankruptcy petition is filing

There are specific exemptions from the creditor’s right to freeze assets using a retraining notice. The following types of income are exempt from being frozen by CPLR §5222:

• Supplemental security income (SSI);
• Social Security;
• Public assistance (welfare);
• Spousal support;
• Alimony/Maintenance;
• Child support;
• Unemployment benefits;
• Disability benefits;
• Workers Compensation benefits;
• Public or private pensions;
• Veterans benefits;
• 90% of wages or salary earned in the past 60 days (with some limitations);
• Railroad retirement;
• Black lung benefits;
• Up to $2500 in a bank account if the funds are from statutorily exempt benefits and were electronically or direct deposited within the past 45 days.

Additionally, New York State’s EIPA law (Exempt Income Protection Act) protects a minimum of $2,100 in each bank account from being frozen by judgment creditors. If you have less than $2,100, your bank cannot legally freeze your account. And if your account includes directly deposited payments from a pension, government assistance (including Social Security, Disability, Veterans and other benefits), child support then EIPA protects $2,750 in your account. Please note that in cases of spousal support, alimony, maintenance and/or child support the above exemptions do not apply.

Stop Enforcement Of A Judgment By Filing For Bankruptcy

The processes of wage garnishment and restraining bank accounts can be stopped by filing a petition in Bankruptcy Court. When a debtor files a bankruptcy petition, § 362 of the Bankruptcy Code creates an automatic stay. The automatic stay in bankruptcy prevents creditors from continuing existing collection efforts or beginning new collection efforts. The automatic stay is very powerful as it put on hold “the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor.”

The automatic stay will stop any garnishment of wages and require the removal of any restraint on a debtor’s bank account once the debtor provides the proof of their bankruptcy filing to the party enforcing the judgment. Monies garnished after filing must be returned to the debtor, and funds in a debtor’s frozen bank account after the filing of the bankruptcy petition should be available for the debtor to use because the automatic stay protects those monies. Once the debtor receives their discharge in bankruptcy, the underlying debt is eliminated. Any attempts by the judgment creditor to continue to collect the (now void) judgment would be a violation of the Bankruptcy Court’s discharge order.

Once the debtor receives a discharge in their bankruptcy case, their debt is eliminated and the creditor can no longer collect on the debt. In fact, if they did it would be a violation of the Bankruptcy Court’s discharge order, and if done willfully could result in a contempt order against the creditor and punitive damages paid to the debtor.

Some Judgments Are Not Dischargeable

The Bankruptcy Code § 532 contains a number of exceptions to discharge. If a creditor obtains a judgment against you for a non-dischargeable debt, filing for bankruptcy will not discharge that judgment. The most common types of non-dischargeable judgments include the following: domestic support obligations such as child support and alimony, student loans, criminal penalties, government fines, certain taxes, debts acquired by fraud, debts related to a willful or malicious injury caused by debtor, and debts related to death or injury caused by debtor’s drunk driving. However, please note that while these debts are not dischargeable in a bankruptcy, the automatic stay still protects the debtor, at least temporarily, from the collection of these debts.

If you have any questions about wage garnishments, frozen bank accounts or filing for bankruptcy in New York, please feel free to contact the Law Offices of David I. Pankin, P.C. at 888-529-9600 or by using our easy online contact form.