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Sometimes these levy tools seem to succeed at first - until you receive notice that the judgment debtor has filed a claim of exemption. Claims of exemption (and third-party claims) can be filed with the sheriff at any time up to the moment the funds are released to the creditor. If a third-party makes a claim, you might be required to post a bond. There is a trick clever debtors (or their lawyers) use, and that is to assert a third-party claim, from some third-party who does not even know the levy proceedings are happening.
Exemptions are actions and protections mandated by laws that protect certain types of income and assets. One exemption-like effect happens when you try to levy wages, if there is already a preexisting levy ahead of yours. (Your levy will not attach because of the previous levy.) Laws protect certain dollar amounts in bank accounts, and also some personal property of the debtor's choice, vehicles, and the tools of their trade, etc.
Note that corporations and LLCs cannot claim exemptions. Some incomes and assets are protected from most creditors. However, certain types of debts can reach and take otherwise exempt assets, for example, delinquent child support, alimony, and federal tax debts.
Some examples of exemptions include unemployment benefits, most types of pensions, retirement plan assets or payments, child support payments, Supplemental Security Income (SSI), veterans benefits, temporary assistance for needy families, certain types of community property assets, disability income, and fixed dollar amounts as mandated by state and federal laws. If your judgment debtor is represented by what is called a "social security disability advocate", then it is highly unlikely that you will find easy success enforcing a judgment. 401Ks are off limits to creditors unless clear cut fraud is proven in court.
Disability benefits are largely exempt from execution for all but child support payments. If a beneficiary receives State disability, they can choose to receive their benefits on an EDD Debit Card that allows them the convenience of accessing their benefits without ever putting them in a bank account. For all practical purposes, that means the funds are unavailable to you.
State laws may also add extra limitations on bank account garnishments. For example, in New York, the first $2,500 in a debtor's account is off limits, if that account ever received protected (Social Security disability checks, for example) electronic deposits in the 45 days prior to the bank's receipt of the levy. In New York, even with unprotected funds, the first $1,716 is levy-proof. Other states have, or are planning, similar first-dollar bank levy exemptions.
After the judgment debtor claims an exemption with the sheriff, if the creditor wants a chance of getting the money "owed" them, they must initiate and attend a court hearing where they and the debtor, get to explain their sides of the story to a judge or commissioner.
When a judgment debtor files a claim of exemption, the creditor must schedule the court hearing to occur within days, or a few weeks at most. In California, as per CCP 703.550, the deadline is 10 days. Other relevant California laws are CCPs 703.570, and CCPs 720.110 through 720.800. If the creditor does not appear at the court hearing, they lose and the debtor's claim is automatically granted. If the debtor does not show up, you win.
If the judgment debtor claims an exemption with the sheriff, the creditor will get a notice in the mail. To challenge this, the creditor must mail back to the judgment debtor (certified mail, return receipt requested) a declaration objecting to the debtor's claim of exemption and a "notice of hearing" regarding objection to the exemption claim. The creditor must also send notice of the hearing to the court.
In California, there is not a form, but some counties have their own forms. In California, the Sheriff is required per the Sheriff's rules to accept any paperwork that indicates there is a third-party claim. Party Claim. The Sheriff sometimes retitles claims of exemption as 3rd party claim. If the court rules that an exemption request is defective, a third party claim may be filed, right up to the moment that the asset is released.
The court hearing usually must be held (varies by state) within two weeks of the creditor receiving the exemption claim. The creditor must act quickly to act quickly to attempt to win. In opposition, you must do a separate pleading entitled Opposition to Third Part Claim.
If you know that your debtor is poor, or you know their exemption is valid, you might as well drop the matter and hope the debtor's luck improves. However, you cannot simply drop it, you must follow up, to make sure the matter gets resolved.
If you do not object to the exemption claim, or do not object within (E.G.) seven days after receiving the judgment debtor's claim of exemption, then within (E.G.) ten days following your receipt of the exemption claim, you must take action. You must obtain a court order, and deliver it to the garnishee (usually a bank or employer) telling them to release the exempt assets to the judgment debtor.
If you do not comply with the exemption rules, the judgment debtor is entitled to receive from you a penalty of (E.G.) $50 plus any actual damages they sustain because their exempt property was not released.
If you decide to show up in court and contest the exemption claim, be prepared at the hearing to quickly and clearly explain to the judge why the court should not allow the judgment debtor's exemption(s).
If you show up in court, the burden is usually on the judgment debtor simply to prove their exemptions are valid. It's not enough for a debtor to claim an exemption. The debtor usually must bring written proof to the court.
If the debtor claims the money in their bank account came from disability funds, they must bring a copy of their bank records showing the deposit patterns to the account coming from disability income. The deposits should all be the same approximate amount, and there should be some documentation showing it is disability income.
Simply claiming a general hardship is usually not enough to win an exemption hearing. Most judges will want to see proof an exemption applies. If the debtor is telling the truth, they will likely have their proof handy. The burden of proof falls on the Claimant (In California, CCP 703.580(b) and CCP 704.080), and federal law USC 42 407(a). See form WG-009, creditors often check box 5(c) and "see attachment 5". This is where one can challenge the judgment debtor's claim. One option to creditors is to offer to take less thank 25%.
If you have determined that the judgment debtor is telling the truth, you can contact the bank or employer in writing, and let them know to release the levy.
As of May 1, 2011, electronically deposited exempted funds, such as Social Security, will now be "tagged" by the federal government, making it easier for financial institutions to separate exempt and nonexempt funds to be garnished. Nonexempt funds that are not direct deposited will not be electronically tagged.
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