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Collection Actions: 11.4.5.2 Homestead

Homestead exemptions protect at least some of the homeowner’s equity in a home, typically with a monetary cap.265 Some homestead exemptions apply to criminal justice debt and some do not266—or they apply only to certain criminal justice debts but not others.267

Collection Actions: 10.3.1.2 Scope of the Procedures Act

The Federal Debt Collection Procedures Act (Procedures Act) governs debts owed to the United States,468 including debts that were originally owed to other parties that the federal government guaranteed.469 It does not govern debts that arise from contracts to which the government was not an original party.470

Collection Actions: 14.3.5 Marshalling of Assets

Marshalling of assets is an equitable doctrine by which a senior creditor, who has more than one fund or item of collateral available to satisfy a debt, may be ordered to proceed in a way that preserves the rights of junior creditors. For example, a court may require a senior creditor to proceed against an asset that it alone can reach, rather than against an asset that is a junior creditor’s sole security.

Collection Actions: 14.3.9.1 Generally

Many states prohibit waivers of personal exemptions, considering waivers to be void and against public policy.190 Courts are particularly likely to find waivers invalid when the exemptions are part of the state constitution.191 The states that do allow waiver generally require that it be in writing, signed by the appropriate parties, and acknowledged.192 Strict compliance with these requirements is necessary.

Collection Actions: 14.3.4 Procedure for Claiming Exemptions

States differ in the procedures they specify for asserting exemptions. Some states require debtors to assert the protections provided by the exemption statutes affirmatively,95 but this approach is not universal.96 A few states require strict compliance with these procedures.97

Collection Actions: 2.4.4 Property

A consumer’s property can be seized to pay a judgment to the extent that the debtor’s equity in that property is not exempt. For example, if a state has a $100,000 homestead exemption and the consumer’s home is valued at $200,000—and is subject to a $105,000 mortgage—then the home is exempt from seizure. The consumer has $95,000 in equity in the home and there is a $100,000 exemption.

Collection Actions: 10.3.4 Exemptions

The Federal Debt Collection Procedures Act (Procedures Act) gives debtors a choice between the federal exemptions provided in the Bankruptcy Code523 or the combination of state exemptions and non-Bankruptcy Act federal exemptions.524 A debtor who chooses the latter option may, to the extent allowed by state law,525 protect property held by the entireties526 or property held as community proper

Collection Actions: 16.3.1 Purpose

Every state protects at least some of a debtor’s basic personal possessions from the reach of creditors. The purpose of these statutes is to allow debtors to retain basic necessities for living. The specific items exempted under each state statute differ, often as a result of the antiquity of the statutes, geography, and the local economy. For example, states in the north frequently exempt a certain amount of products that are to be used as fuel.

Collection Actions: 15.5.3.1 Generally

It is not unusual for an individual to list another person, perhaps a relative or friend, jointly on a bank account even though only one of them deposits funds into the account. The reason may be to facilitate care for an aging parent, hold money in trust for a child, or facilitate management of an account while a member of the armed forces is serving overseas.

Collection Actions: 16.2.9 Entireties Property

The usual rule is that non-exempt real property that is jointly owned can be reached for the debts of either of the co-tenants.164 However, although the rule is not universal,165 many jurisdictions, either by statute or under common law, protect the marital home against seizure for the debts of one spouse.166 Where recognized, the tenancy-by-entireties doctrine is a critically important protection for the family home.

Collection Actions: 16.4.3.1 Personal Injury Recoveries

Some states exempt personal injury recoveries. In Maryland, personal injury compensation is exempt, even against claims for child support.283 On the other hand, a federal court interpreted a poorly worded District of Columbia exemption not to protect a personal injury recovery.284

Collection Actions: 16.4.2 Annuities

Some states provide a specific exemption for annuities.277 Wisconsin has an unlimited exemption for tax-qualified annuities and a capped exemption for other annuities.278 Montana makes garnishment of annuities discretionary with the court after consideration of the reasonable requirements of the debtor and their family.279 Georgia has interpreted its exemption to apply only to annuities that provide income that substitutes for wages.

Collection Actions: 14.5.4 Notice Must Inform Debtor of Exemptions

Numerous cases have set out a consistent set of guidelines as to what a garnishment notice must state in order to satisfy due process. The notice must inform the debtor that garnishment has occurred, describe major legal exemptions from garnishment, and describe what procedures the debtor can follow to contest the garnishment.260 Disclosing this information places little burden on creditors or the state because the information can be included in a preprinted form.

Collection Actions: 17.3.3 Can a Court Order a Judgment Debtor to Make Payments and Enforce the Order by Contempt?

Despite the near universal prohibition against imprisonment for ordinary civil debts, there are exceptions in some states that effectively allow imprisonment for debt. A court may order a debtor to make payments on a debt and then try to hold the debtor in contempt for failing to do so.51 Some courts hold that this stratagem is not an impermissible imprisonment for debt on the theory that the debtor is not being punished for owing the debt but for violating the court order.52

Collection Actions: 10.3.3.3 Garnishment of Wages and Bank Accounts

The Procedures Act specifies procedures the government must follow to obtain a garnishment of wages, a bank account, or other property that is in the possession, custody, or control of a third party.500 The government must make demand on the debtor for payment of the debt at least thirty days before applying for a writ of garnishment.501 It must also serve a copy of the writ of garnishment on the debtor, along with instructions about how to object to the writ and how to obtain a hearing.

Collection Actions: 15.4.1 What Retirement Benefits Are Protected

Strong public policies favor the protection of retirement plans, without which the state might have to support people made destitute by deprivation of their retirement income.515 Federal law states that benefits provided under the Civil Service Retirement System, and its more recent replacement—the Federal Employees Retirement System—are not assignable or subject to execution, levy, attachment, garnishment, or other legal process.516 Military retirement pay is also exempt under federal law b

Collection Actions: 14.5.1 Introduction

Garnishment is a frequently used debt collection technique in which the collector seizes money someone owes to the debtor. For example, a creditor may seize the debtor’s wages directly from the employer or seize the debtor’s bank account directly from the bank. Creditors can also proceed against property that is in the debtor’s possession, such as a car or household goods, by obtaining an order for it to be seized and sold.

Student Loan Law: 16.10 Postjudgment Remedies

Unlike with federal student loans, where the amount owed can be collected through tax intercepts, administrative wage garnishment, and federal benefit offsets without a court judgment, a holder of a private student loan cannot recover on the debt until it obtains a court judgment. Once a court judgment is obtained, the holder can garnish wages, seize funds in bank accounts, and even attach property.