Debtor's lament - accounts frozen by garnishment

When an ordinary creditor garnishes a debtor's bank account, the bank responds by freezing the debtor's access to the funds until the garnishment process is complete. I suppose the bank will continue to accept deposits into the account, but withdrawals and automatic bill payments stop. The debtor's outstanding checks begin to bounce as they are presented to the bank for payment. This happens even if all of the debtor's cash in a deposit account are exempt from execution by law and are immune from seizure. Twentieth Century garnishment procedures require the debtor to affirmatively act to claim and prove the exemption and persuade a judge to release the garnishment, restraint, freeze or whatever they call it in your local jurisdiction. The process can easily take 30 days or more. From a debtor's point of view, it's like adding injury to insult. It is an very iffy proposition that every debtor has the wits and resources to take the steps necessary to protect his or her legal rights.

In the last few years the U.S. Treasury Department has developed regulations to mitigate this debtor problem, at least with respect to federal benefit payments that are immune from seizure by ordinary creditors.  Veteran benefit payments and Social Security benefits are prime examples. These federal benefits, among others, are practically impervious to the claims of ordinary creditors. The U.S. Congress and the U.S. Supreme Court have said so, repeatedly. But, prior to the age of digital banking, who knew where money came from? 

With most federal benefit payments being made by direct deposit these days, the source of the deposits are digitally encoded and the financial institution 'knows' if funds in an account are exempt. The recently finalized Treasury regulations ( 31 C. F. R. 212) require banks and other financial institutions to make two months of exempt payments available to the debtor during the garnishment process while freezing any surplus funds.

This does not change the scope of the debtor's exemption. If the debtor has more than two months worth of exempt benefit payment on deposit, the debtor must still follow ordinary garnishment procedures to claim the full exemption. In the meantime, the debtor is not frozen out of exempt cash needed for day-to-day living expenses.

Will this new system work to perfection and without error? Probably not.

But, a word of caution to debtors. It is best to leave exempt federal benefit direct deposits in the same account into which they were originally deposited. If any direct deposited benefit funds are transferred by the debtor to a different account, as for example from a checking account to a savings account, the bank's ability to easily identify the exempt funds may be forfeited. Again, this does not change the availability of the exemption, but it may result in more of the debtor's funds being frozen as application is made to the court and the debtor proves the exemption.

Garnishment Exemptions Available to Kentucky Residents

Certain property is exempt from seizure by general creditors. There are several categories of exemptions available to Kentucky debtors. Different exemptions apply to non-bankruptcy debtors and debtors in the process of seeking bankruptcy protection. Certain exemptions are provided by Kentucky law and others are provided by federal law. Different exemptions apply to tax debts and non-tax debts. Most Kentucky non-bankruptcy non-tax debt exemptions otherwise available do not provide protection for claims of child support obligations.  Many federal exemptions do not apply to debts to the federal government.

The following is a rough outline of available exemptions under Kentucky and federal law. As with all things legal, the devil is in the details and the opportunity for serious complications is nearly endless.

Kentucky Non-Bankruptcy Exemptions

This is a fairly comprehensive list of Kentucky statutory non-bankruptcy exemptions. A few, like exemptions for state bonuses paid to World War I veterans, have been omitted. Additional specific federal exemptions are listed below.

• Alimony support or separate maintenance
• An award under a crime victim's reparation law;
• Payment received for wrongful death of an individual the debtor was a dependent to the extent reasonably necessary for support of debtor and debtor's dependents;
• Up to $7,500 paid for personal injury, with qualifications;
• Compensation for loss of future earnings to the extent reasonably necessary for support and maintenance;
• Payments received from an exempt pension;
• Individual retirement accounts, and other types of retirement plans, with some exceptions;
• Household furnishings, jewelry and personal clothing not to exceed $3,000 in value;
• Tools, equipment and livestock of a person engaged in farming, not exceeding $3,000;
• One motor vehicle and its necessary accessories, not exceeding in the aggregate $2,500;
• Professionally prescribed health aids for the debtor, or a dependent of the debtor;
• The tools, not exceeding $300 in value, of any individual debtor necessary in his trade;
• The professional library and office equipment of a minister, attorney, physician, surgeon, chiropractor, veterinarian, or dentist, necessary in the practice of such profession, and not exceeding $1,000 in value;
• Homestead or burial plot not to exceed $5,000 in value, total;
• Certain life insurance benefits;
• Certain police or firefighter’s pension fund benefits;
• Worker’s compensation benefits;
• Certain retirement annuity benefits for public school and university teachers and employees;
• Participation in Kentucky Educational Savings Plan Trust;
• Wages of work-release prisoners, with exceptions;

KRS 427.045 - Exemptions not applicable to claims for child support, provides:

“The exemptions provided in KRS 342.180 and KRS 427.010 to 427.040 shall not apply for executions, attachments, or garnishments, issued for the collection of maintenance of minor children.”

Federal Non-Bankruptcy Exemptions

Most of the following exemptions are not available as against child support or tax collections. Many are nevertheless subject to administrative offset for the collection of non-tax debts to the United States.

• Social Security Benefits - Old Age, Survivors and Disability Benefits
• Supplemental Security Income (SSI) Benefits
• Veterans’ Benefits
• Civil Service and Federal Retirement and Disability Benefits
• CIA Retirement benefits
• Crop insurance
• Military Annuities and Survivors’ Benefits
• Student Assistance - Federal Work Study program benefits
• Railroad Retirement Benefits
• Merchant Seamen Wages
• Longshoremen’s and Harbor Workers’ Death and Disability Benefits
• Foreign Service Retirement and Disability Benefits

Exempt Funds after Deposit into Bank Account

Question: Can a general creditor successfully garnish exempt payments once the money has been deposited into a debtor’s bank account?

Answer: Maybe yes and maybe no. It depends.

In Matthews v. Lewis, Ky., 617 S.W.2d 43 (1981), the Kentucky Supreme Court answered the question for one type of exempt payment, A bank account containing worker’s compensation payments continue to be exempt from execution, attachment and garnishment. The court wrote:

“We hold that unless they provide clearly to the contrary, Kentucky's exemption statutes, including but not limited to KRS 342.180, extend protection to deposits in bank checking accounts so long as those deposits can be identified as or traced to payments of exempt funds.”

Although the Matthews case should provide debtors considerable encouragement with similar statutory exemptions, each statutory exemption is subject to the proviso the statute may, “clearly provide to the contrary.”

For example, Kentucky’s Transitional Assistance Program (KTAP) provides in KRS 205.220(3):

"Public assistance shall not be assignable and shall be exempt from levy or execution. Furthermore, no assignment, pledge or encumbrance of any right to benefits due or payable under this chapter shall be valid. Public assistance benefits, as long as they are not mingled with other funds of the recipient, shall be exempt from any remedy for the collection of all debts, liens and encumbrances. No waiver of any exemption provided for in this subsection shall be valid.” [emphasis added]

Matthews v. Lewis, did not impose the no-mingling of funds requirement generally. This specific statute added the requirement.

Additionally, there is a potential for complications depending upon the type of account into which the exempt funds are deposited. There is a distinction between money that is immediately available to the debtor for current living expenses and money that has been transformed into an ‘investment.’ There are many different types of accounts offered by banks and financial institutions that are clearly long term investment accounts. The continued exempt status of funds in these accounts would be disqualified. This, as lawyers like to say, is an “interesting question.”

Wage Exemptions Are Not Exemptions

The federal Consumer Credit Protection Act (CCPA) limits the amount of a debtor’s wages that can be garnished. Kentucky has enacted statutory law virtually identical to the CCPA wage garnishment limits in KRS 427.010(2). Although this has been lumped in KRS Chapter 427 with other genuine exemption provisions, for codification purposes, this accident of proximity does not really mean much.

This statutory limit on wage garnishments is not an exemption and it does not protect wages after they have been paid to the employee. If the wages actually paid to an employee are deposited into a bank account, they are subject to a bank garnishment, in Kentucky. See: Brown v. Commonwealth of Kentucky, 40 S.W.3d 873  (Ky. App. 1999)

See also: Notes on Kentucky's exemption laws.

Kentucky Garnishment of Jointly Owned Bank Accounts

It often happens that a creditor will garnish a debtor’s bank account, but there are more individuals named as account owners than just the one debtor. People have a multitude of reasons for jointly owned bank accounts, and they may never have thought about the possibility their individual deposits to an account might be subject to the debts of a another named account co-owner.

KRS 391.310(1) provides in part as follows:

“A joint account belongs, during the lifetime of all parties, to the parties in proportion to the net contributions by each to the sums on deposit, unless there is clear and convincing evidence of a different intent.”

A party’s “net contribution” to the account is defined by KRS 391.300(6) as the sum of all deposits thereto made by or for him, less all withdrawals made by or for him which have not been paid to or applied to the use of any other party, plus a pro rata share of any interest or dividends included in the current balance. These statutory provisions are “relevant only to controversies between these persons and their creditors and other successors,” KRS 391.305. Each of an account’s co-owners may be authorized full access and right to withdraw all of the funds in an account, even if that is more than their respective individual contribution of fund into the account, but in Kentucky the mere right to withdraw all the funds from an account does not establish ‘ownership’ of all the funds.

For example, a joint account is established for a child’s education with the intent that the child is the owner of all the funds in the account even though many contributions into the account are made by others. If contributions to the fund are intended as gifts to the child,  “clear and convincing” documentation should be created to establish that intent to safeguard the account funds from the other’s creditors, KRS 391.310(1), supra.

Ownership of joint bank accounts is presumed by statute to depend upon who contributed the funds to the account, subject to proof of a different intention. But, with bank account judicial garnishments, Kentucky courts have held that a party to a joint account is initially presumed to own the entire joint account for procedural purposes. The debtor or other account co-owners must claim and prove their respective contributions to the account to overcome that presumption, or prove an intention that the non-contributor has a greater ownership interest than their relative contributions would indicate. See Brown v Commonwealth of Kentucky, 40 S.W.3d 873 (Ky. App. 1999)

Brown, supra, stated in passing the best procedural practice would be for the non-debtor joint owner of the account to intervene as an interested party pursuant to Civil Rule 24.01 and assert his or her ownership rights directly.

Distraint for Rent or Garnishment - Kentucky Law

This is a very long explanation of not very much.

Residential landlord and tenant law is complicated in Kentucky because the Uniform  Landlord and Tenant Act (URLTA), as enacted  by the Kentucky legislature, applies to residential renters in some parts of the Commonwealth, but not in other parts. In Kentucky, URLTA is available as a local government option, to be enacted as local governments see fit, or not. Consequently, whether the provisions apply to any particular residential tenancy depends upon the geographic location of the residence. Generally speaking, the larger urban centers in Kentucky, such as Louisville and Lexington, have locally adopted URLTA but the more rural areas have not.

The URLTA provisions do not apply to commercial and agricultural renters, wherever they may be located in the Commonwealth. URLTA applies only to residential tenancies in areas that have adopted that law locally.

Kentucky landlords have a statutory lien for unpaid rent on the tenant’s personal property, which may be recovered by attachment or by action, KRS 383.010, et seq., even if the rent debtor’s property is in the possession of a third party. KRS 383.020(1) states, “A distress warrant or attachment for rent shall bind, and may be levied upon, any personal property of the original tenant found in the county . . . .” This language indicates the subject personal property of the rent debtor does not necessarily have to be found on the leased premises. This landlord remedy is traditionally known as distraint for rent. The URLTA, on the other hand, abolishes distraint for rent, KRS 383.680, for residential tenants, in those areas where URLTA applies.

Seizing a person’s personal property in the hands of a third party to satisfy a debt for rent has the same look and feel as does a non-wage garnishment, but it has an entirely different statutory foundation.

Practice and Procedure - The Part That Makes Me Crazy

Regarding the issuance and service of a Kentucky judicial garnishment.

KRS 425.501(3) states,

"The order of garnishment shall be served on the persons named as garnishees, and in addition a copy thereof shall be delivered by the garnishee to the judgment debtor or mailed to him at his last known address . . . . " [emphasis added]

The Kentucky Circuit Court Clerk's Manual procedure for garnishments states,

"6. To Issue a Wage Garnishment (AOC Form 150):

"a.  * * *

"b. Creditor or attorney will mail Notice of Rights (top page of AOC Form 150) to judgment debtor." [emphasis added]

There is no similar provision in the Clerk's Manual for the creditor, rather than the garnishee, to notify the judgment debtor for a non-wage garnishment order. Maybe there are instructions to the garnishee printed on the AOC Form 150.1. I have not seen that form yet. It's not available online.

So, does the garnishee notify the judgment debtor of the garnishment, does the judgment creditor notify the judgment debtor of the garnishment or do they both provide notice? Is the rule the same or is it different for wage garnishments and non-wage garnishments?

It's not a big deal if the judgment debtor actually receives timely written notice of the garnishment, regardless of who delivers the notice. But, if the judgment debtor does not receive written notice of the garnishment, or receives it late in the game, it could cause unnecessary problems.

I believe that the garnishee is more likely to be in the best position to have current accurate contact information for the judgment debtor. But, that's just me. I also believe that garnishees may not reliably follow instructions, like lawyers do.

Kentucky Judicial Garnishment Procedure - By the Book

Sometimes I get lucky . . . .

KENTUCKY CIRCUIT COURT CLERKS' MANUAL
Written and Edited by:
Office of Legal Services
Administrative Office of the Courts
1001 Vandalay Drive
Frankfort, KY 40601
December 31, 2013

The Kentucky Circuit Court Clerks Manual (Clerks Manual) is published by the Administrative Office of the Courts (AOC) and written by the AOC Office of Legal Services. The Clerks Manual constitutes rules of the Kentucky Supreme Court pursuant to CR 1(2), RCr 1.02(2) and SCR 1.050(1) and is published for the purpose of establishing procedures for the daily operations in the Office of Kentucky Circuit Court Clerk.

The online version of the Clerks Manual is the official version and is current as of the date you are viewing it online. BE ADVISED THAT THE CLERKS MANUAL IS SUBJECT TO REVISION AT ANY TIME AS A RESULT OF CHANGES NECESSARY PURSUANT TO STATUTE, COURT RULE, AND CASE LAW, AS WELL AS LEGAL INTERPRETATIONS MADE BY THE AOC OFFICE OF LEGAL SERVICES.

* * * *

pp 293 - 296

GARNISHMENT AFTER JUDGMENT
KRS 425.501 TO 425.526
CR 69.02
(Circuit or District Court)

1. Garnishment is a special kind of execution by which property of the judgment debtor in the hands of a third party may be reached, including (but not limited to) wages in the hands of his/her employer. Garnishment before judgment is an attachment, and the procedures for issuing a writ of attachment must be observed. Proceed to attachment and writ of possession sections for procedures.

When to Issue

2. Follow the direction of the court‟s order specifying when a garnishment may be issued. In the absence of a court order and upon the filing of a proper affidavit by the judgment creditor, issue the garnishment ten days after judgment has been entered. KRS 426.030.
Exceptions to Issuance

a. If a motion attacking the judgment is filed as provided in CR 62.01, do not issue the garnishment until ten (10) days after entry of judgment on the motion. City of Louisville v. Verst, 308 Ky. 46, 213 S.W. 2d 517 (1948).

(1) Motion for new trial;
(2) Motion to amend or vacate the judgment;
(3) Motion for judgment notwithstanding the verdict;
(4) Motion for amending the findings.

b. Do not issue the garnishment if supersedeas bond has been given pending appeal. CR 73.04.

Affidavit for Garnishment

3. The judgment creditor's affidavit for garnishment must show the date of judgment, the amount due on the judgment, that the named persons hold property belonging to the judgment debtor, or are indebted to him/her. KRS 425.501(1). The affidavit is the last page of AOC Form 150 for Wage Garnishment. AOC Form 145 is the affidavit for Non-Wage Garnishment. Apply the "FILED" stamp to the affidavit; add the date and your initials. File by completing a document screen.

4. Bond is not required of the judgment creditor. KRS 425.501(2).

Fee

5. If satisfied with the affidavit, collect the bond filing fee as set forth in the Fees and Costs section of this manual and give a receipt.

Issuance of Wage Garnishment

6. To Issue a Wage Garnishment (AOC Form 150):

a. Have the judgment creditor or attorney complete AOC Form 150, Order of Wage Garnishment.

b. Creditor or attorney will mail Notice of Rights (top page of AOC Form 150) to judgment debtor.

c. Creditor or attorney will select method of service of Order (pages 2,3,4,5, of AOC Form 150).

(1) If creditor or attorney requests service through clerk‟s office, collect postage fees as set forth in the Fees and Costs section of this manual and give a receipt.

(2) If creditor or attorney chooses another method of service, give completed AOC Forms 150 and 150.4 to creditor or attorney.

Issuance of Non-Wage Garnishment

7. To Issue a Non-Wage Garnishment (AOC Forms 145 and 150.1):

a. Have judgment creditor or attorney complete AOC Form 145, Affidavit for Writ of Non-Wage Garnishment and 150.1, Order of Garnishment (Non-Wage).

b. Creditor or attorney will select method of service of order (AOC Form 150.1).

(1) If creditor or attorney requests service through clerk‟s office, collect postage fees as set forth in the Fees and Costs section of this manual.

(2) If creditor or attorney chooses another method of service, give completed AOC Forms 150 and 150.4 to creditor or attorney.

8. Make a docket notation of the issuance of the garnishment by completing a document screen. Use the date of issuance as the filing date.

NOTE: If AOC Forms 150 and 150.4 are returned to the creditor or attorney for service, note this fact in the memo field of the document screen.
If proceeds from a non-wage garnishment are returned to the clerk, hold the funds for 15 days from the date of return of the proceeds unless otherwise ordered by the court.

Return on Garnishment

9. If a return on the garnishment is received, apply the "FILED" stamp; add the date and your initials. Enter the file stamp date and the return of service information in the memo field of the document screen where the garnishment was issued. Answer of Garnishee

10. When the Answer of Garnishee is received, apply the "FILED" stamp; add the date and your initials and file by completing a document screen.

Funds Held by Clerk

11.a. Wage Garnishment If the creditor in a wage garnishment is not represented by an attorney, the garnishee will forward the funds to the clerk. Hold the funds for 15 days from the date of the employer's check. CR 69.02.

11.b. Non-Wage Garnishment If proceeds from a non-wage garnishment are returned to the clerk, hold the funds for 15 days from the date of return of the proceeds unless otherwise ordered by the court.

Affidavit to Challenge

12. If the debtor believes the garnished funds/ property are exempt from garnishment, the debtor can challenge the garnishment by filing an AOC Form 150.2, Affidavit to Challenge Garnishment (Wage or Non-Wage).

a. Wage Garnishment: AOC Form 150.2 must be completed within 13 days of the date on the payroll check from which funds were withheld.

b. Non-Wage Garnishment: AOC Form 150.2 must be completed within 10 days of the garnishee's date of receipt of the garnishment.

c. Set a hearing using the lower half of AOC Form 150.2 and note on court calendar by completing a scheduled events screen. File the original of AOC Form 150.2 by applying the "FILED" stamp; add date and your initials and complete a document screen. Give one copy to debtor and mail a copy to creditor's attorney.

d. When AOC Form 150.3, Garnishment Challenge Order is received:

(1) Apply "ENTERED" stamp to the order, add the date and your initials. Do not use the "FILED" stamp.

(2) Enter the order on a document screen including a brief description. This constitutes entry of the order; the order does not become effective until this is done. RCr 11.04.

(3) After the order is entered serve notice of entry on every party who is not in default or who has not filed a waiver of notice by making a copy of the order that has been stamped entered and mail or hand deliver it to the party or attorney. CR 77.04(1), RCr 12.06(1)(3).

(4) Make an entry on the document screen showing the manner and date of service of notice of entry of the order. RCr 12.06.

Supplemental Garnishment

13. When a creditor or creditor's attorney files AOC Form 150.5, Affidavit and Supplemental Order of Wage Garnishment, for the unpaid balance and accrued interest:

a. Creditor or attorney completes the affidavit (top portion of AOC Form 150.5), retains one copy and mails one copy to the debtor. Apply the "FILED" stamp; add the date and your initials and file by completing a document screen.

b. Collect a fee for the issuance of the supplemental garnishment as set forth in the Fees and Costs section of this manual and give a receipt.

c. Issue the supplemental garnishment (bottom portion of AOC Form 150.5). Make a notation of the issuance of the supplemental garnishment by completing a document screen, using the date of issuance as the filing date. Creditor or attorney will select method of service of the garnishment.

d. If a return of service on the garnishment is received, apply the "FILED" stamp; add the date and your initials. Enter the file stamp date and the return of service information in the memo field of the document screen where the garnishment was issued.

IRS Tax Levy Garnishment Exemptions

IRS tax levy garnishment exemptions are refreshingly simple. 26 U.S.C. § 6334 - Property Exempt From Levy, provides in part,

"(a) Enumeration

"There shall be exempt from levy —
"(1) . . .
"(2) . . .
"(3) . . .
"(4) Unemployment benefits . . .
"(5) . . .
"(6) Certain annuity and pension payments . . . payments under the Railroad Retirement Act, . . . the Railroad Unemployment Insurance Act, special pension payments received by a person . . .[on the military] Medal of Honor roll . . ., and annuities . . . [for retired military].
"(7) Workmen’s compensation Any amount payable to an individual as workmen’s compensation . . .
"(8) Judgments for support of minor children .
"If the taxpayer is required by judgment of a court of competent jurisdiction, entered prior to the date of levy, to contribute to the support of his minor children, so much of his salary, wages, or other income as is necessary to comply with such judgment.
"(9) [See note below]
"(10) Certain service-connected disability payments . . .
"(11) Certain public assistance payments
"Any amount payable to an individual as a recipient of public assistance under—

"(A) [SSI for the aged, blind, and disabled], or
"(B) State . . . public welfare programs for which eligibility is determined by a needs or income test.

("12) Assistance under Job Training Partnership Act . . . . "

Note:  26 U.S.C. § 6334(a)(9) must be read in conjunction with 26 U.S.C. § 6334(d) the amount exempt from an I.R.S. wage garnishment is the sum of one standard deduction plus each allowed personal exemption, with that annualized amount being pro-rated to the applicable wage pay period. Also,  26 U.S.C. § 6334(d)(2)(B) provides that a verified written statement must be submitted to establish the number of personal exemptions. Otherwise, in the absence of such a verified written statement, the exemption "shall be applied as if the taxpayer were a married individual filing a separate return with only 1 personal exemption."

26 U.S.C. §§ 6334(a)(8) & (9) are the only parts of this section that would apply to a debtor's wages. The payments set out as exempt in paragraphs (4), (6), (7), (10), (11) and (12) clearly cannot be garnished by the I.R.S. directly, but the funds may become vulnerable to a bank garnishment once the benefits have been deposited into an account.

Matthews v. Lewis, Ky., 617 S.W.2d 43 (1981) may provide some traction for a debtor arguing the statutory exemption follows the funds, at least to the extent that they can be traced and identified.  In Matthews workers’ compensation benefits deposited into a checking account had been garnisheed. The Kentucky Supreme Court was asked to decide whether a Kentucky exemption statute (KRS 342.180) precluded the garnishment. The Court ruled that statutory language specifically identifying worker's compensation payments as exempt from execution was intended to preclude garnishment. The opinion observed that:

"Our society's contemporary social programs exhibit a philosophy of relief for the distressed, the impoverished, and the victims of personal and financial catastrophes among us. The Workers' Compensation Act is simply one aspect of those social programs. Kentucky's exemption statutes are simply another necessary instrument in the overall scheme of social welfare programs. They are the teeth in the protection given certain deserving victims from their creditors . . . We hold that unless they provide clearly to the contrary, Kentucky's exemption statutes, including but not limited to KRS 342.180, extend protection to deposits in bank checking accounts so long as those deposits can be identified as or traced to payments of exempt funds."

The Complexity of Kentucky Garnishment Procedure In a Nutshell

Kentucky's garnishment procedures, principally contained in KRS §425.501, et seq.,  KRCP Rule 69.02 and various local rules of court, attempt to accommodate a wide variety of factual circumstances, most of which never present in actual practice.

• There are different rules for wage and non-wage garnishments;
• There are different rules for wage garnishments of support payments, taxes, student loans and other types of debt;
• The same rules apply to garnishment of debts owed to the judgment debtor and personal property owned by the judgment debtor currently in the possession of a third party;
• Debts owed to the judgment debtor might or might not be for a specified fixed amount. For example, there are types of bank accounts that are tied to various markets that may fluctuate from day to day;
• Debts owed to the judgment debtor might or might not be due on demand. A third party may owe money to a judgment debtor, but it is not due and payable right now;
• Third parties may have superior claims to to property sought to be garnished;
• A vast array of federal or state non-bankruptcy exemptions may apply to the property potentially subject to garnishment. Some of these exemption require the judgment debtor to affirmatively claim the exemption and some do not;
• A garnishee defendant may be uncooperative and not respond to a garnishment order or may not serve notice of the garnishment order upon the judgment debtor, as required;
• Garnishment orders may be one-shot deals or they may be continuing;
• Multiple garnishments from different judgment creditors may descend at virtually the same time;
• Enforcement of foreign judgments may present unique problems;
• Seeking to garnish against an out-of-state garnishee defendant via Kentucky's long-arm statutes can be fun; 
• With costs, post judgment interest and the costs of the garnishment added in, it may be difficult to know when the judgment creditor's judgment is satisfied and the garnishment lien is released; 
• The garnishment may be barred by the time limit on judgments imposed by KRS 413.090;
• The property sought to be garnished may be jointly owned, and;
• . . . .more that I haven't considered yet.

Time Allowed to Claim a Kentucky Garnishment Exemption

How much time does Kentucky civil procedure allow a judgment debtor to object to a garnishment or to claim an exemption? It is a question without an easy answer.

Typically, it seems, many Kentucky garnishments proceed quite summarily, and without ever landing upon any judge's desk. A judgment creditor files a form AOC-145 (Affidavit for Writ of Non-Wage Garnishment), the court clerk issues a form AOC-150.1 (Order of Non-wage Garnishment), the garnishee defendant is served, the judgment debtor is notified and nothing happens until the garnishee delivers the money to the creditor's attorney. End of story.

I have read that form AOC-150.1 (Order of Non-wage Garnishment) expressly states the judgment debtor has ten days within which to present objections or exemptions, but there is nothing in KRS 425.501(4) or the Kentucky Rules of Civil Procedure, CR 69.02, to give that ten day limit an authoritative foundation. In an unpublished opinion, MGM Collection Agency, Inc. v. Barger , 1999-CA-001848-DG, the Kentucky Court of Appeals stated that there was no time limit for claiming an exemption in a garnishment action. I believe this to be a bit of judicial hyperbolic dicta. There has to be some limit, even if that limit is ambiguous or unspecified.

The decisive factors in MGM Collection Agency, Inc. v. Barger seem to have been that; (1) A non-party joint account owner promptly presented a meritorious objection to the bank garnishment (i.e. it wasn't the judgment debtor's money) before any sum was delivered by the bank to the judgment creditor, and; (2) Although we know when the bank itself was served with the garnishment order, there is nothing in the Appellate Court's opinion showing when the judgment debtor first received notice of the garnishment.

In short, the judgment creditor's whole appeal hinged upon the thinnest technicality.

The fog surrounding this issue is so dense, it is difficult to clearly and succinctly describe its contours. With the written law being so indefinite,  it should be sufficient to assume the timeliness of a judgment debtor's objection to a garnishment or a claim of exemption is a matter within the trial court's discretion, based upon a multiplicity of relevant factors, including any claim of excusable neglect.

But, that's just me talking.

Claiming a Kentucky Exemption: Bank Accounts

Question: Why do creditors garnish bank accounts?

Answer: Sutton's Law. Because that's where the money is.

An assortment of State and Federal statutes provide a variety of debtor exemptions for retirement benefits, worker's compensation benefits, alimony payments and more. Generally, this means that creditors cannot go directly after the source of these funds and garnish them before they are paid. However, once these benefits are paid to the debtor and the funds are deposited in the debtor's bank account, it is a different issue. Are these exempt benefits subject to a bank garnishment?

In Matthews v. Lewis, 617 S. W. 2nd 43 (1981), the Kentucky Supreme Court addressed the following issue:

"The question presented by this case is whether assets received from a statutorily exempted source and placed by the recipient into his or her bank checking account lose their exempt status."

 After a detailed discussion of Kentucky precedent and cases from several other jurisdictions, the Kentucky Supreme Court held:

" . . . . unless they provide clearly to the contrary, Kentucky's exemption statutes, including but not limited to KRS 342.180, extend protection to deposits in bank checking accounts so long as those deposits can be identified as or traced to payments of exempt funds."

 So, basically . . . no. Subject to the debtor's burden of proving the bank account funds originate from an exempt source, they may not be garnished to satisfy an ordinary debt. Debts for taxes and child support are a different story.

The court stated, "The right to a subsistence way of life is considered fundamental," and quoted from Kruger v. Wells Fargo Bank, 11 Cal.3d 352, 113 Cal.Rptr. 449, 521 P.2d 441 (1974).

"The legislative objective in providing unemployment compensation and disability benefits — to furnish the unemployed worker and his family with a stream of income to defray the cost of their subsistence — would probably fail if creditors could seize that income and apply it to past debts. Consequently the Legislature provided that unemployment and disability benefits cannot be subjected to attachment or execution."

The court continued with,

"Our society's contemporary social programs exhibit a philosophy of relief for the distressed, the impoverished, and the victims of personal and financial catastrophes among us. The Workers' Compensation Act is simply one aspect of those social programs. Kentucky's exemption statutes are simply another necessary instrument in the overall scheme of social welfare programs. They are the teeth in the prosecution given certain deserving victims from their creditors."

The laws applicable in Kentucky provide many protections for debtors in distress, but debtors must be aware of these legal rights and they must also take effective action to assert these rights when they are threatened.