Kentucky wage garnishment order: Pity the employer

The official Kentucky form for a wage garnishment order (AOC-150) is a multi-part carbon-less form with important employer instructions printed on the reverse side, on colored paper. Unfortunately, it is nearly impossible to read. So, I did a high resolution scan and boosted the contrast to make it more legible. Here it is.

Kentucky wage garnishment order employer instructions

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.

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."

Student Loan Wage Garnishment Hardship Exemption

Both 34 CFR §34.24 - §34.25 and 11 KAR 3:100 provide for a financial hardship exemption in administrative wage garnishments of, respectively, (1) defaulted student loans made directly by the U.S. Department of Education and, (2) defaulted student loans guaranteed by the Kentucky loan insurance program, the Kentucky Higher Education Assistance Authority.

Ordinary consumer student loans subject to judicial wage garnishments under Kentucky law do not have any similar hardship exemption expressly authorized by statute or judicial precedent, that I have found.

I have previously suggested (see: Inventing a Kentucky Wage Garnishment Hardship Exemption) that such an equitable hardship exemption might be implicit in Kentucky's judicial wage garnishment statute, KRS § 427.010(2).

All the world needs now is for some brave soul to put it to the test.

34 CFR § 34.24 - Claim of financial hardship by debtor subject to garnishment, provides in relevant part:

"(a) You [the student loan debtor] may object to a proposed garnishment on the ground that withholding the amount or at the rate stated in the notice of garnishment would cause financial hardship to you and your dependents. (See § 34.7)
"(b) . . .
"(c) . . .
"(d)

"(1) You bear the burden of proving a claim of financial hardship by a preponderance of the credible evidence.
"(2) You must prove by credible documentation —

"(i) The amount of the costs incurred by you, your spouse, and any dependents, for basic living expenses; and
"(ii) The income available from any source to meet those expenses.

"(e)

"(1) We consider your claim of financial hardship by comparing —

"(i) The amounts that you prove are being incurred for basic living expenses; against
"(ii) The amounts spent for basic living expenses by families of the same size and similar income to yours.

"(2) We regard the standards published by the Internal Revenue Service under 26 U.S.C. 7122(c)(2) (the ‘‘National Standards’’) as establishing the average amounts spent for basic living expenses for families of the same size as, and with family incomes comparable to, your family.
"(3) We accept as reasonable the amount that you prove you incur for a type of basic living expense to the extent that the amount does not exceed the amount spent for that expense by families of the same size and similar income according to the National Standards.
"(4) If you claim for any basic living expense an amount that exceeds the amount in the National Standards, you must prove that the amount you claim is reasonable and necessary. "

The corresponding part of the Kentucky Administrative Regulation, 11 KAR 3:100(6), starts off simple and shifts from the general to the specific, and then . . .

"(a) If the debtor asserts as a defense a claim that withholding of his disposable pay would constitute an extreme financial hardship, the debtor shall submit documentation of all available resources and actual expenses and shall have the burden of demonstrating the necessity of actual expenses.
" (b) The hearing officer shall compare the debtor's available resources and the necessary expenses and current debt obligations of the debtor and debtor's dependents. The hearing officer shall determine that extreme financial hardship exists if the debtor currently is not able to provide at least minimal subsistence for the debtor and debtor's dependents that could be claimed on a federal income tax return. The hearing officer shall consider as available resources of the debtor income of the debtor, the debtor's spouse, and debtor's dependents from all sources, including nontaxable income and government benefits, expenses paid on behalf of the debtor by another person, and the cash value of any current liquid assets, such as bank accounts and investments. The hearing officer shall consider the claim of extreme financial hardship in accordance with the presumptions established in this paragraph.

"1. Withholding of an amount of disposable pay shall constitute an extreme financial hardship if:

"a. The debtor resides in the District of Columbia or a state other than Alaska or Hawaii and the debtor's available resources do not exceed the applicable poverty guideline, multiplied by 125 percent, based on the debtor's family size:"

 . . . . and, then it gets way too complex to easily summarize or excerpt You'll just have to read it for yourself. This much of it indicates that one living below 125% of the poverty level cannot have his or her wages garnished by a state administrative proceeding to satisfy a student loan debt, upon proper application and proof.

Student Loan Wage Garnishments

There are three general categories of student loans.

1. Direct loans from the U. S. Department of Education;
2. Loans guaranteed by a state loan insurance program, and;
3. Ordinary consumer loans.

Each of these three types of student loans may ultimately be collected by garnishment upon default. However, the legal authority and the procedures applicable in the event a garnishment is pursued depends upon the source and the type of the loan.

Administrative wage garnishments to collect direct student loans from the Federal government are authorized by the  Debt Collection Improvement Act of 1996 and they are subject to the procedures contained within 34 Code of Federal Regulations (CFR) Part 34.

Administrative wage garnishments to collect student loans guaranteed by a state loan insurance program are authorized by the Higher Education Act and corresponding State statutes and regulations. The administrative wage garnishment procedures used by the Kentucky Higher Education Assistance Authority are contained in 11 Kentucky Administrative Regulation (KAR) 3:100.

Wage and non-wage garnishments to collect ordinary consumer student loans are subject the the same statutory law, procedural rules and appellate opinions as are all other judicial garnishments.

It is important to know which type of student loan it is.

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.

Inventing a Kentucky Wage Garnishment Hardship Exemption

I have found at least one state that provides for a discretionary exemption in a wage garnishment based upon the debtor's claim of economic hardship. I have located nothing in Kentucky law that is expressly similar.

Oklahoma Statutes §31-1.1.provides, in part:

"Earnings from personal services - Exemption from process - Order.

"A. Following the issuance of [a] . . . garnishment . . . the debtor may file with the court an application requesting a hearing to exempt from such process by reason of undue hardship that portion of any earnings from personal services necessary for the maintenance of a family or other dependents supported wholly or partially by the labor of the debtor. A debtor with no family or other dependents may not claim an exemption under this section. . .

"B. In determining the existence of an undue hardship, the court should consider the income and expenses of the family and other dependents, and the standard of living created by the income and expenses. The court should also consider the standard of living in relationship to the minimal subsistence needs of the debtor’s family and other dependents, with comparison to the minimal subsistence standards in the community, in regard to basic shelter, food, clothing, personal necessities and transportation. The court should then determine if the lack of the funds sought to be exempt would be an undue hardship by creating less than a minimal level of subsistence. If deprivation of these earnings would create an undue hardship on the debtor and the family or other dependents the debtor supports, the court may:

"1. Order all or a portion of the personal earnings exempt . . . . 

[emphasis added]

Kentucky's exemption statutes do embody the concept of reasonably necessary support as being an essential factor for claiming particular types of exemptions. For example:

KRS § 427.150(1);

"To the extent reasonably necessary for the support of an individual and his dependents . . .  rights to receive money or property for alimony, support, or separate maintenance." [emphasis added]  

KRS § 427.150(2)(b);

"A payment on account of the wrongful death . . .  to the extent reasonably necessary for the support of the debtor and any dependent of the debtor;"  [emphasis added]

KRS § 427.150(2)(d);

"A payment in compensation of loss of future earnings . . .  to the extent reasonably necessary for the support of the debtor and any dependent of the debtor;"  [emphasis added]  

The Kentucky statutory limit on wage garnishment in KRS § 427.010(2), which is not a true "exemption" according to the Kentucky Court of Appeals in Brown v. Commonwealth, 40 S.W.3d 873 (1999), provides, in relevant part:

". . . . the maximum part of the aggregate disposable earnings of an individual for any workweek which is subjected to garnishment may not exceed the lesser of . . . . " [emphasis added]

The language of KRS § 427.010(2) suggests the determination of an individual debtor's wages subject to garnishment is not a mechanical calculation, and there is a space from within which the debtor can reasonably argue the financial circumstances of his or her specific case justify the court to limit a wage garnishment to less than the maximum allowed by statute, down to and including zero, within the court's sound exercise of discretion.

What's the maximum amount of wage garnishment?

The Federal Consumer Credit Protection Act of 1968, as amended in 1977, set national restrictions on wage garnishment, applicable in each of the 50 states. Some states have established greater restrictions, but none may allow lesser restrictions. So, the maximum amount that may be garnished from wages under Federal law is the maximum everywhere in the United States even though the individual states are allowed to provide a lower maximum, and many have done so. In other words, the states may be more debtor-friendly than the Federal law, but they cannot be less so.

The relevant Federal statute is found at 15 USC § 1673 - Restriction on garnishment. "No court of the United States or any State, and no State (or officer or agency thereof), may make, execute, or enforce any order or process in violation of this section." - 15 USC § 1673(c).

Different types of debt - different limits

These Federal law restrictions on wage garnishment do not apply to:
(1) The collection of any Federal or State tax, and;
(2) Orders of a United States judge in a Chapter 13 Bankruptcy proceeding.
        - 15 USC § 1673(b)(1)(B and C).

This Federal statute envisions two different type of debt, and it imposes different limits on wage garnishment for each type, with a few variations:

1. Court ordered support payments, and;
2. All other debts.

With either type of debt, wage deductions required by law are subtracted before any garnishment calculation is made. Examples of legally required deductions are federal, state and local income taxes, Medicare tax, Social Security contributions and the employee portion of state unemployment compensation insurance.

Deductions that are not required by law do not count to reduce your disposable income. These include union dues, life and health insurance and most retirement plan contributions.

In short, earnings - taxes = disposable wages subject to garnishment.

Wage garnishment for court ordered support payments

The rules are different depending upon two factors:

1. If the support payment is more than 12 weeks past due, and;
2. If you are providing support for a spouse or dependent child in addition to the person covered by the support order.

There are four different combinations of these two factors, and they each have different rules.

• Support payments 12 weeks past due and no other support obligation
  - 65% of disposable wages may be garnished.
• Payments 12 weeks past due with another support obligation
  - 55% of disposable wages may be garnished.
• Support payments up-to-date and no other support obligation
  - 60% of disposable wages may be garnished.
• Support payments up-to-date with another support obligation
  - 50% of disposable wages may be garnished.

Wage garnishment for all other debts

For all other debts, the maximum wage garnishment amount is 25% of disposable income or thirty times the Federal minimum wage on a weekly basis, whichever is less. It's not that complicated.

Right now the Federal minimum wage is $7.25 per hour. That times thirty equals $217.50 for one week. If your disposable income for one week of work is less than $217.50, then none of it may be garnished to pay general debts.

If your disposable income for one week of work is greater than $217.50, then it is necessary to solve two simple arithmetic problems and then to compare the results.

First, subtract $217.50 from your weekly disposable earnings.

Second, multiply your weekly disposable earnings by 0.25.

Then, whichever is LESS, that's the maximum amount that can be garnished.

Of course, this is all based on weekly earnings. If you get paid once every two weeks or on some other payment schedule, you have to make adjustments.

And remember, different states may offer lower maximums and other types of exemptions.

    

A checklist for the wage garnishment debtor

There are few things in life more insulting, embarrassing and shocking  then to have your wages garnished. Even if you know that it's coming, or suspect the possibility, it is still a big shock when it happens. The universal question is, "What can I do about it."

The first priority is to get informed, both about the law and the facts.

The first understanding is in the United States there are a few Federal wage garnishment laws that apply to every state, but the main legal provisions are based upon State law, and the laws are very different from one State to the next. So, the Federal wage garnishment laws apply everywhere in the United States no matter where you live and the State wage garnishment laws apply depending upon where you live, where you work and where your employer does business. See the limits on wage garnishment put in place by Federal law: What's the maximum amount of wage garnishment?

The second understanding is that different wage garnishment rules apply depending upon the type of debt that's being collected. A wage garnishment for a credit card debt is different from a garnishment for a child support debt, for example. There are several other types of debt, with differing garnishment rules, in addition to these.

An important third understanding is the availability of free or low-cost legal services. Legal Services Corporation lists affiliates in each of the fifty States and the District of Columbia. In order to qualify for free legal assistance from a program funded by LSC, you must not have income and assets over a certain level. The programs only accept cases that fall within its established priorities, which may or may not include wage garnishments. But, you must contact your local program directly to find out if you meet the eligibility guidelines and if your legal problem is among the program's priorities for services. If your local program is unable to help you directly, they may be able to suggest other useful resources in your area.

The final understanding is that you can always do it yourself, without a lawyer. You have a Constitutional right to represent yourself in court. Some cases are simple and others are complex. Some of the more complex issues of garnishment law involve debtors, employers and creditors in different states. See: Can garnishment follow you Across State Lines?

Checklist:

A. Basic information you must have:

1. The name of the court that ordered wage garnishment and the court identification number for your garnishment. 
2. The name of the garnishment creditor and its lawyer. You need contact information.
3. The source of the debt being collected. This usually involves a prior lawsuit and court judgment against you. It is useful to have all the details about that prior lawsuit too. It might have been in a different court, or even in a different state. What is the total amount owed? What is the interest rate you are now being charged on this amount?

B. Options:

1. Pay the whole debt, plus interest, in full.
2. Seek bankruptcy protection.
3. Take the required steps to claim optional State law exemptions, if any are available.
4. Seek to invalidate or set-aside the prior judgment.
5. Negotiate a voluntary payment plan that does not involve wage garnishment.
6. Seek to have the amount of the garnishment reduced for hardship reasons.