Is Collecting Money About to Get Harder?

25 Feb

In this challenging economy, one of the most important services we offer is helping clients collect money.  Garnishment is a vital tool created by statute, which we use to help these clients by seizing a debtor’s money from another party who may owe or be holding that money for the debtor.  Often this includes a bank where the debtor holds an account.

The garnishment process does not involve the immediate turnover of the seized funds to the creditor; banks typically respond to a garnishment by stating the amount that is in the debtor’s account.  The bank then holds that money for up to six months until we “levy” on the money, unless the debtor can point to a reason under law that the funds should not be released to the creditor.

A case recently filed in the United States District Court in Minnesota challenges the constitutionality of the garnishment process.  The plaintiffs in Billiar v. Atlantic Credit & Financial, Inc. claim the rights provided to creditors under the statute violate the 14th Amendment to the U.S. Constitution, the so-called “Due Process Clause”.  The Due Process Clause provides, essentially, that no person may be deprived of his or her property without first receiving “due process”, or in other words notice and an opportunity to be heard.

The claim asserted in Billiar is that the creditor, who was owed money by Mark Fiers, garnished an account that Mr. Fiers held jointly with his children and his partner Kristie Billiar.  Only Mr. Fiers owed money to the creditor, so the creditor had first obtained a judgment against Mr. Fiers, but it did not have a judgment against the other account holders.  So while Mr. Fiers received notice and the opportunity to be heard, Ms. Billiar and the children did not.

A recent Minnesota Supreme Court decision previously established that creditors may seize funds in a joint account until and unless the non-debtor is able to establish that the funds in the account do not belong to the debtor.  Ms. Billiar and the other plaintiffs claim that seizing the money of someone other than the debtor is not fair unless you first give them notice and a chance to object.  The plaintiffs and others also point out that even seizing money for a day may cause a check to bounce, causing further damage to the non-debtor.

On the other hand: 1) neither the creditor nor the bank know how much of each account holder’s money is in the account, and a creditor who knows of the account may not know it’s a joint account, so requiring the creditor to provide notice to a non-debtor is not practical; 2) it is reasonable to assume that anyone who holds an account jointly with another person would (or should) be aware of a judgment against the debtor; and 3) if funds held jointly with another person were automatically protected from creditors, then debtors would have an easy way to stop collection activities simply by opening joint accounts.

As attorneys who perform a lot of this work, we will be watching the outcome of this case.  Regardless what happens, however, we will continue to use our creative and results-driven approach to helping clients get paid.

Matt Drewes contributed this post.  Matt is a Shareholder with Thomsen Nybeck.  He is the head of the firm’s nine-member Community Association Representation Group and the firm’s Creditors’ Remedies Group. and practices in the areas of business and real estate litigation and transactions, employment law, construction litigation, community association law, debtor/creditor law and insurance.  He has been included in Minneapolis/St. Paul Magazine’s list of Rising Stars for several years, and has been quoted on issues involving construction litigation, community associations and real property issues in the Minneapolis Star Tribune, Minnesota Lawyer, Yahoo!Finance.com, Bankrate.com, and elsewhere.  He can be reached at mdrewes@tn-law.com or by phone at 952.835.7000.

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