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    CREDITORS' RIGHTS: Ability of Judgment Creditor to Garnish Protected Assets After Deposit into Debtor's Account

    Posted by Gale Burns on Wed, Dec 19, 2012 @ 16:12 PM

    The Lawletter Vol 37 No 9

    Charlene Hicks, Senior Attorney, National Legal Research Group

    As judgment creditors throughout the nation have experienced firsthand, it is often more difficult to enforce a judgment against a financially strapped debtor than it is to obtain the judgment in the first place.  To further complicate matters, state and federal laws protect certain assets, such as retirement pensions, from garnishment.  In an effort to circumvent such measures, creditors may attempt to garnish the debtor's bank account into which protected monies have been deposited.  On a nationwide basis, these efforts have met with mixed success.  Some courts have held that protected funds cannot be garnished even after they have been deposited in the debtor's account, whereas other courts have ruled that the monies lose their protected status once they have been deposited.

    This split of authority was highlighted in the recent case of Anthis v. Copland, 270 P.3d 574 (Wash. 2012).  There, Bonnie Anthis won a wrongful death lawsuit against Walter Copland, a retired police officer.  To enforce the judgment, Anthis attempted to garnish Copland's only known asset, his retirement pension, which had been deposited in Copland's personal bank account.  Copland, in turn, claimed that the funds were exempt from garnishment or attachment.  The relevant Washington state statute states that a person's right to a retirement allowance "shall not be subject to execution, garnishment, attachment, . . . or any other process of law whatsoever."  Wash. Rev. Code § 41.26.053(1).

    In analyzing the merits of Copland's claim, the Washington Supreme Court conducted a detailed exploration of how other state and federal courts have dealt with benefits-exemption statutes.  As a general rule, these courts have held that "some unambiguous reference to money actually paid to or in the possession of the pensioner is necessary in order to find that pension funds retain their exempt status postdistribution."  Anthis, 270 P.3d at 578 (¶ 14).  Federal courts, for example, have ruled that the language of the Social Security Act prohibiting garnishment of "the moneys paid or payable" to a beneficiary mandates the continued protection of such funds "even after deposit" in the beneficiary's personal bank account.  Id. (citing Philpott v. Essex County Welfare Bd., 409 U.S. 413, 415-17 (1973)).

    In contrast, the language of the ERISA statutes simply requires that employee benefits plans prohibit the assignment or alienation of benefits.  The First, Second, Third, Ninth, and Tenth Circuits have held that this language is not an antialienation provision and, therefore, does not prohibit garnishment after funds are deposited into pensioners' personal bank accounts.  Id. at 578-79 (¶ 15).  The Fourth Circuit, however, has ruled that a pensioner cannot be required to turn over ERISA benefits that have been paid to him.  Id.; see United States v. Smith, 47 F.3d 681, 684 (4th Cir. 1995).

    Cases decided under state law "have tended to follow the federal holdings requiring explicit language to exempt benefit payments deposited into a personal bank account or otherwise placed into the personal possession of the debtor."  Anthis, 270 P.3d at 579 (¶ 16).  A Michigan court of appeals, for example, had held that its state exemption statute protected only a retiree's right to a benefit and, therefore, did not prohibit garnishment of monies paid as a retirement benefit.  Id. (discussing Whitwood, Inc. v. S. Blvd. Prop. Mgmt. Co., 701 N.W.2d 747 (Mich. Ct. App. 2005)).

    A minority of state courts, however, have held that "even where the statutory language is somewhat ambiguous, . . . 'statutorily exempt funds do not lose their exempt status by voluntary deposit into a checking account, as long as the source of the exempt funds is known or is reasonably traceable.'"  Id. at 579 n.11 (¶ 17) (quoting Haggarty v. George, No. 00-C.A.-86, 2001-Ohio-3481, 2001 WL 1647216, at *2 (Ct. App. Dec. 13, 2001) (unpublished)).  According to this minority view, the "placement of [protected] funds in a bank does not strip them of their protected character."  Id.

    Following the majority line of cases, the Anthis court ruled that because the Washington Legislature did not unambiguously extend exemption protection to pension monies deposited in a bank account, such funds were not protected from garnishment.  Thus, Copland's pension payments lost their protected status at the moment they were deposited into his personal bank account.  Hence, Anthis could legitimately garnish those monies.

    As Anthis demonstrates, judgment creditors may successfully garnish or attach a debtor's previously protected assets, such as retirement funds, once the asset is converted into monies and deposited in the debtor's bank account.  A creditor's ability to satisfy its judgment through this means is largely dependent on the exact language of the state or federal benefits-exemption statute in question.  A judgment creditor interested in pursuing this avenue of relief should carefully review the status of the law in the governing jurisdiction prior to taking any enforcement action.

    Topics: legal research, Charlene Hicks, The Lawletter Vol 37 No 9, benefits-exception statutes, Social Security Act prohibits garnishment after fu, creditor's rights, enforcement of judgment, protection of funds once deposited in bank, unambiguous statute language generally governs sta

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