Relevant case law pertaining to the Exempt Income Protection Act (EIPA)

Posted on May 27, 2014 by Richard Klass

Holding: A Judgment Creditor who seeks a turn-over of moneys restrained in a judgment debtor’s account must plead and prove compliance with the requirements of CPLR 5222-a, including proof that the bank actually served the exemption notice and claim forms on the debtor. [This matter involved a levy by execution from the Sheriff].

LR CREDIT 21, LLC v. BURNETT, 40 Misc.3d 854, 967 N.Y.S.2d 916, 2013 N.Y. Slip Op. 23209 [District Court, Nassau County, June 24, 2013].

Relevant language from the decision:

Moreover, reading CPLR 5222–a in conjunction with provisions of CPLR 5232(g) governing execution and levy, the law clearly provides that ‘all procedures stated [in CPLR 5222–a(b) and CPLR 5232(g) ] must be followed.’ CPLR 5232(g)(emphasis added). Consistent with this mandatory statutory directive, this Court now holds that a judgment creditor seeking a turnover order in a matter involving a claimed levy by execution must plead and prove compliance with CPLR 5222–a(b)(2) and 5222–a(b)(3) in order to make a prima facie case for a turnover order.

Furthermore, in the absence of proof that the bank actually served an exemption notice and two exemption claim forms upon the judgment debtor within two business days of receipt of the execution, see CPLR 5222–a(b)(3), the Court has no way of determining whether the judgment debtor’s time to claim an exemption has expired. The law, as written, gives the judgment debtor twenty days “from the date postmarked on the correspondence containing the notice and forms” to claim an exemption. See CPLR 5222–a(c)(1). As Judge Hirsh explained in North Shore Univ. Hosp. v. Citibank, supra, “the only way a court can determine whether the time for a judgment debtor to exercise its right pursuant to CPLR 5222–a has expired is to require the judgment creditor to plead and prove in the turnover proceeding compliance with the provisions of CPLR 5222–a …” Id. Since “a judgment creditor cannot commence a turnover proceeding until the time for a judgment debtor to exercise its claim of exemption pursuant to CPLR 5222–a has expired,” the judgment creditor must necessarily plead and prove that this time limit has expired in order to make out a prima facie case for a turnover. Id.

Holding: A Judgment Creditor has the burden of proving that the debtor’s claimed exemption to restrained funds is inapplicable. The only requirement imposed by the statute on the debtor is to complete and return the Exemption Claim Form. [The debtor may but is not required to supply supporting documentation with the completed exemption claim form].

MIDLAND FUNDING LLC v. ROBERTS, 37 Misc.3d 617, 950 N.Y.S.2d 867, 2012 N.Y. Slip Op. 22241 [Supreme Court, Sullivan County, July 30, 2012].

Relevant language from the decision:

Consistent with EIPA’s goal of protecting judgment debtors from the seizure of exempt assets, CPLR § 5222–a(d) provides that the Exemption Claim Form by itself is prima facie evidence that the funds in a debtor’s account are exempt funds. Thus, once Defendant filed the Exemption Claim Form, Plaintiff had the burden to demonstrate that the claimed exemptions are inapplicable.

Plaintiff’s counsel also attempted to dissuade Defendant from opposing the motion by incorrectly asserting that Defendant failed to comply with CPLR § 5222–a by failing to provide “Information demonstrating that the funds are exempt [including], but not limited to, originals or copies of benefit award letters, checks, check stubs or any other documents that discloses the source of the judgment debtor’s income, and bank records showing the last two months of activity” in addition to the Exemption Claim Form. While judgment debtors are encouraged to provide documentation supporting their exemption claim in order to speed up the process of unfreezing their money, CPLR § 5222–a does not require judgment debtors to supply any supporting documents with their Exemption Claim Form. Thus, a judgment debtor’s failure to submit any documents with their Exemption Claim Form does not render the Exemption Claim Form invalid or even suspect.

Consistent with EIPA’s goal of offering special protection to judgment debtor’s exempt assets, CPLR § 5222–a(d) specifically refers to holding a “hearing” and does not provide for generally resolving these proceedings on the papers.

Holding: While the debtor may simply return the exemption claim form as prima facie evidence of an exemption, the judgment creditor is entitled to question the source(s) of funds in order to meaningfully contest the debtor’s claim.

MIDLAND FUNDING LLC v. SINGLETON, 34 Misc.3d 798, 935 N.Y.S.2d 844, 2011 N.Y. Slip Op. 21430 [District Court, Nassau County, Dec. 1, 2011]

Relevant language from the decision:

While CPLR 5222–a(d) makes the Exemption Claim Form prima facie evidence of an exemption and places the burden of proving the funds are not exempt upon the judgment creditor, the judgment creditor is entitled to the opportunity to question the judgment debtor as to source of the funds claimed to be exempt. Fundamental fairness and basic due process require the judgment creditor be provided with some method for meaningfully contesting the judgment debtor’s claim the funds on deposit in an account are exempt from execution.

Holding: A Judgment Creditor cannot commence its turn-over special proceeding prior to the time that the debtor’s time to complete the exemption claim form and claim his exemption has expired.

NORTH SHORE UNIVERSITY HOSPITAL AT PLAINVIEW v. CITIBANK LEGAL SERVICE INTAKE UNIT, 25 Misc.3d 655, 883 N.Y.S.2d 898, 2009 N.Y. Slip Op. 29333 [District Court, Nassau County, Aug. 4, 2009]

Relevant language from the decision:

CPLR 5222–a creates new statutory procedures for advising a judgment creditor certain funds on deposit in a bank account are exempt from restraint and execution and creates an expeditious and possibly non-judicial resolution of a judgment debtor’s claim of exemption.

Permitting a judgment creditor to commence a turnover proceeding before the judgment debtor’s time to exercise his or her rights under CPLR 5222–a has expired would provide a judgment creditor with the ability to circumvent the safeguards and rights provided to a judgment debtor pursuant to this section. Thus, this court finds a judgment creditor cannot commence a turnover proceeding until the time for a judgment debtor to exercise its claim of exemption pursuant to CPLR 5222–a has expired.

The only way a court can determine whether the time for a judgment debtor to exercise its rights pursuant to CPLR 5222–a has expired is to require the judgment creditor to plead and prove in the turnover proceedings compliance with the provisions of CPLR 5222–a that require a judgment creditor to serve an Exemption Notice and Exemption Claim Form with the restraining notice and to plead the judgment debtor’s time to serve an Exemption Claim Form has expired and none has been received.

Such a requirement will give the judgment debtor the opportunity to claim an exemption and have the claim of exemption determined without having to defend a turnover proceeding. If the exemption is claimed, then the judgment creditor can proceed to either release the funds [CPLR 5222–a(c)(4) ] or object to the claimed exemption. Id.; and CPLR 5222–a(d). If the funds on deposit are exempt, the judgment creditor should release the funds without judicial intervention. CPLR 5222–a(c)(4).

If the judgment creditor challenges to the claimed exemption, then the judgment creditor must move within 8 days of the date postmarked on the envelope containing the Exemption Claim Form to challenge the claimed exemption. CPLR 5222–a(d). The motion to contest an exemption can be brought on by motion in the action in which the judgment was entered and will be resolved within a maximum of 20 days from the date the Exemption Claim Form is served.(FN2) If the court finds the funds on deposit in the account are exempt from restraint and execution, the court will issue an order releasing the funds. A turnover proceeding will never be commenced.

(FN2) The motion to challenge the exemption must be made within 8 [sic] of postmarked date on the envelope containing the executed Exemption Claim Form. The motion must be made returnable 7 days after the service of the motion papers. The court must decided [sic] the motion within 5 days of the hearing date. CPLR 5222–a(d).

If a judgment creditor commences a turnover proceeding before the judgment debtor has the time to claim an exemption pursuant to CPLR 5222–a has run, the possibility exists for the turnover proceeding to be heard by one court and the CPLR 5222–a application to be heard by another court. This could result in one court issuing a turnover order while the other court finding the funds are exempt from execution. The court must do everything possible to avoid to such irreconcilably inconsistent results.

In order to insure a judgment debtor is given the opportunity to assert a claim that the funds on deposit in the restrained bank account are exempt from restraint and execution, a judgment creditor who serves a restraining notice on a bank must plead and prove proceeding compliance with CPLR 5222–a as part of its prima facie case in a turnover proceeding. Since a judgment creditor must plead and prove compliance with CPLR 5222–a in the petition filed in a turnover proceeding, a judgment creditor cannot commence a turnover proceeding before the time for a judgment debtor to claim an exemption pursuant to CPLR 5222–a has expired.

Holding: There is no private cause of action in favor of a judgment debtor against a bank for failure to comply with the requirements of the Exempt Income Protection Act.

CRUZ v. TD BANK, N.A., 22 N.Y.3d 61, 2 N.E.3d 221, 979 N.Y.S.2d 257, 2013 N.Y. Slip Op. 07762 [Court of Appeals of New York, Nov. 21, 2013]

Relevant language from the decision:

CPLR article 52 sets forth procedures for the enforcement of money judgments in New York, which may include the imposition of a restraining notice against a judgment debtor’s bank account to secure funds for later transfer to the judgment creditor through a sheriff’s execution or turnover proceeding. Under both federal and state law, certain types of funds are exempt from restraint or execution, including Social Security benefits, public assistance, unemployment insurance, pension payments and the like (see generally CPLR 5205). Although the clear legislative intent is that funds of this nature are not to be subject to debt collection (and therefore excluded from any pre-execution restraint), prior to 2008 banks served with restraining notices often inadvertently froze accounts containing income from these sources, leaving judgment debtors without access to much-needed exempt monies.

The EIPA was intended to ameliorate this problem, amending certain existing statutes in CPLR article 52 and adding a new CPLR 5222–a (L. 2008, ch. 575). The amendments restricted the scope of the restraint that can be implemented against the bank account of a natural person and created a new procedure aimed at ensuring that this class of judgment debtors is able to retain access to exempt funds. In substance, subject to limited exceptions consistent with federal law, the EIPA precludes a bank from restraining baseline minimum balances in a “natural person’s” account absent a court order. Specifically, $2,500 is free from restraint “if direct deposit or electronic payments reasonably identifiable as statutorily exempt payments … were made to the judgment debtor’s account during the forty-five day period preceding” the restraint (CPLR 5222[h] ). Otherwise, the statute excludes from restraint an amount that corresponds to 90% of 60–days wages under the federal or state minimum wage laws, whichever is greater, to be periodically adjusted—$1,740 as of July 2009 (CPLR 5222[i] ).

In addition to limiting the scope of a restraint, the EIPA added new notification and claim procedures in CPLR 5222–a intended to educate judgment debtors concerning the types of funds that are exempt from restraint or execution in order to facilitate the filing of exemption claims. A judgment creditor restraining a bank account (in anticipation of a sheriff’s execution by levy or court-ordered transfer of assets) must serve the bank with specific forms: two copies of the restraining notice, an exemption notice and two exemption claim forms (CPLR 5222–a [b][11] ). The restraint is void if the judgment creditor fails to provide these documents to the bank; in that event, the bank “shall not restrain the account” (CPLR 5222–a [b][1] ), nor can the bank charge fees associated with a restraint (CPLR 5222[j] ).

CPLR 5222–a also imposes a new obligation on financial institutions because it compels banks to mail to judgment debtors (the account holders) copies of the exemption notices and exemption claim forms received from judgment creditors (CPLR 5222–a [b][3] ). The statute states, however, that “[t]he inadvertent failure by a depository institution to provide the notice required … shall not give rise to liability on the part of the depository institution” (CPLR 5222–a [b][3] ). The notice advises the judgment debtor that the bank account is being restrained, describes the categories of funds that are exempt from restraint, and provides information concerning how to seek vacatur of the money judgment to avoid a subsequent transfer of the funds to the judgment creditor (CPLR 5222–a [b][4][a] ). The exemption claim form lists specific income sources that are not subject to restraint or execution (such as Social Security benefits, unemployment insurance, child support, veteran’s benefits, etc.) and directs the debtor to check the box next to any applicable exempt funds that have been deposited in the account (CPLR 5222–a [b][4][b] ). The debtor is then advised to return one copy of the claim form to the bank and the other to the creditor (or its representative) within 20 days (CPLR 5222–a [b][4][b] ). If 25 days have elapsed and the bank has not received an exemption claim form from the judgment debtor, all funds in the account in excess of the applicable statutory minimum remain subject to the restraining notice (CPLR 5222–a [c][5] ). However, a failure to return the claim form may not be interpreted as a waiver of any exemption the judgment debtor may possess (see CPLR 5222–a [h] ).

Upon receipt of an exemption claim form from the account holder, the bank must notify the judgment creditor “forthwith” of the exemption claim and the creditor then has eight days to object (CPLR 5222–a [c][2], [3] ). If no objection is lodged, the restraint is lifted with respect to the disputed funds and the monies are released to the judgment debtor (CPLR 5222–a [c][3] ). To object to an exemption claim, the creditor must timely commence a special proceeding under CPLR 5240, serving papers on both the debtor and the bank before the expiration of the eight-day objection period (CPLR 5222–a [d] ). Within seven days of commencement of the proceeding, a hearing is to be held before a court, resulting in issuance of a judicial decision no later than five days after the hearing (CPLR 5222–a [d] ). In the meantime, the bank is required to hold the disputed funds for 21 days unless a court order directs otherwise; if 21 days pass and no judicial resolution of the exemption issue is forthcoming, the bank must release the disputed funds to the judgment debtor (CPLR 5222–a [e] ). Another subdivision imposes special liability upon judgment creditors that object to exemption claims in bad faith (CPLR 5222–a [g] ).

The EIPA did not alter the preexisting provisions in CPLR article 52 permitting the commencement of special proceedings whereby creditors, debtors and “any interested person” can adjudicate disputes over the ownership of income or property (CPLR 5239, 5221), nor did it restrict the power of the court to “make an order denying, limiting, conditioning, regulating, extending or modifying the use of any enforcement procedure” (CPLR 5240).

Plaintiffs appealed to the United States Court of Appeals for the Second Circuit, which consolidated their cases for the purpose of appeal only. After reviewing CPLR article 52, including the EIPA, the court concluded that the cases presented novel issues of New York law that should be resolved by this Court, certifying the following questions:

“first, whether judgment debtors have a private right of action for money damages and injunctive relief against banks that violate EIPA’s procedural requirements; and

“second, whether judgment debtors can seek money damages and injunctive relief against banks that violate EIPA in special proceedings prescribed by CPLR Article 52 and, if so, whether those special proceedings are the exclusive mechanism for such relief or whether judgment debtors may also seek relief in a plenary action” ( 711 F.3d 261, 271 [2d Cir.2013]).

We agree with the District Courts that a private right to bring a plenary action for injunctive relief and money damages cannot be implied from the EIPA—and we therefore answer the first certified question in the negative. As for the second certified question, a judgment debtor can secure relief from a bank arising from a violation of the EIPA in a CPLR article 52 special proceeding as we have explained. And our determination that the legislation created no private right of action compels the conclusion that the statutory mechanisms for relief are exclusive. Banks had no obligation under the common law to forward notices of exemption and exemption claim forms to judgment debtors. It therefore follows that any right debtors have to enforce that obligation, among others imposed under CPLR 5222–a, arises from the statute and, since the EIPA does not give rise to a private right of action, the only relief available is that provided in CPLR article 52 (see generally Kerusa Co. LLC v. W10Z/515 Real Estate Ltd. Partnership, 12 N.Y.3d 236, 879 N.Y.S.2d 17, 906 N.E.2d 1049 [2009] ).

by Richard A. Klass, Esq.

copyr. 2014 Richard A. Klass, Esq.
The firm’s website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation in Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.comcreate new email with any questions.
Prior results do not guarantee a similar outcome.

R. A. Klass
Your Court Street Lawyer

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Surprise!

Posted on June 11, 2013 by Richard Klass

On a recent day, “Jack” (not his real name) went to an ATM to withdraw money from his bank account. To his surprise, he could not. Upon contacting the bank’s customer service department, he discovered that his bank account was restrained and could not be accessed. The bank’s representative informed him that there was a judgment against the joint accountholder—a friend, we’ll call him “Stan”—and this was the reason for the restraint on the account.

Jack remembered that many years ago, when he needed to travel to his home country for several months, he asked Stan if he could put Stan’s name on the bank account in case Jack needed someone to pay his bills while traveling. Ultimately, Stan never used the account—never wrote a check, never made a deposit, and never made any withdrawals. Unfortunately, years later, a creditor of Stan got a judgment against Stan and now, Jack, the primary account holder of the bank account, was paying the price.

Joint bank accounts and Banking Law Section 675

According to New York Banking Law Section 675, a joint bank account is presumed to belong to each of the accountholders—meaning that each person (and his judgment creditors) may access the full amount of the account. Specifically, this section of law provides that, except for fraud or undue influence, the making of deposits into a joint account is evidence that the depositor intended the account to be a joint tenancy. The burden of proving otherwise is upon the person who challenges title, which, in this case, would be the primary accountholder.

Once restrained, a creditor of one accountholder may be able to obtain half or all of the money in the joint account, according to differing court opinions. (One opinion, Ford Motor Credit Co. v. Astoria Federal, 189 Misc.2d 475, holds the creditor is entitled to more than half of account, and another, Mendel v. Chervanyou, 147 Misc.2d 1056, holds that it is not). In any event, in this situation, Jack had the problem where all of the money in the account belonged solely to him and Stan never used the account.

“Convenience” bank accounts

Luckily, there is another concept that applied to this situation. The law recognizes that a bank account may be established as a quasi-joint account, where a person is added merely as a “convenience” to the primary accountholder. This convenience is typically done in situations where there is an elderly parent or disabled person who cannot easily travel to the bank to handle his banking needs.

The account may actually be set up in this exact form from its inception (Banking Law Section 678 authorizes this type of account), or it may operate as one where there is sufficient proof that adding the other name to the account was just for the convenience of the accountholder. Where the account is initially set up as a convenience account, the bank will indicate the same and any deposits will not be presumed to belong to each of the accountholders but just the primary one. Also, upon death of the primary accountholder, the other person will not have a right of survivorship in the account, but the moneys will pass to whomever the primary accountholder has designated in his Will or heirs at law. Where the account is not designated as a convenience account from the onset, Banking Law Section 675 will allow a party to rebut or disprove the general presumption that it was a true joint account—evidence may include the wording written in on the account application or signature card, sources of deposits, usage of the account, and the circumstances in which the account was set up.

Jack’s attorney searched the internet for “exempt property and accounts” for more information and found an article by Richard A. Klass on the subject of the Exempt Income Protection Act (EIPA).* After getting the run-around from the creditor’s attorney for almost three weeks, Jack decided to retain Richard A. Klass, Your Court Street Lawyer.

Upon sending proof regarding the fact that the account belonged to the primary accountholder and that the debtor was on the account only for convenience purposes, along with a letter explaining the law and threatening to sue for attorney’s fees, the creditor’s attorney confirmed the next day that the account would be immediately released.

by Richard A. Klass, Esq.

* The article, entitled “Analysis of Exempt Income Protection Act,” may be found on the firm’s website.

copyr. 2013 Richard A. Klass, Esq.
The firm’s website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.comcreate new email with any questions.
Prior results do not guarantee a similar outcome.

Credits:
Photograph on page one: ATM in Santillana, 2008, by Handige Harrie. Artwork released by author into the public domain.

R. A. Klass
Your Court Street Lawyer

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Analysis of Exempt Income Protection Act

Posted on January 4, 2013 by Richard Klass

By Richard Klass, Esq.

On January 1, 2009, New York State enacted new measures relating to the restraint of debtors’ bank accounts, through the enactment of the Exempt Income Protection Act (“Act”).

The Act materially changes the process of restraints on debtors’ bank accounts, and the steps that each party to the process must take. The Act imposes new requirements on (a) the bank, to identify and analyze the source(s) of income and deposits into an account; (b) the judgment creditor’s attorney, to issue new exemption notices and forms, and appropriately address claimed exemptions by the debtor; and (c) the debtor, to timely raise any exemption claims upon restraint of an account. Since this process is “brand new” to New York law, the manners in which all of these parties, as well as the court system address the process will evolve from practice and procedure.

To begin the analysis, it is important to first see from where it came. In the past, all attorneys for judgment creditors had to resolve the issue of whether to release a debtor’s restrained bank account upon the debtor’s claim that the moneys contained in the account were exempt funds. Normally, the attorney would ask the debtor to provide proof (through account statements or other documents) regarding the claim, at which point either the attorney would consent to release the account or the debtor would bring an Order to Show Cause to claim the exemption. Part of the considerations of the Legislature in enacting the Act was that the threat of the continued restraint of the bank account, especially where the debtor needed immediate access to the moneys, without fair consideration of any exemptions, created a perceived presumption of uneven bargaining positions between the parties.

Another component of the process that played a part in the passing of the Act was the increased ease of the banking institutions to create or identify accounts containing only exempt moneys. The increased ease is due to the “direct deposit” and “electronic payment” features now common – the banking institutions are now better able to quickly determine the source of funds in an account, for the most part.

The Act amended or added the following sections of Article 52 of the Civil Practice Law and Rules: (a) CPLR 5205 – Exemptions; (b) CPLR 5222 – Effect of Restraint; (c) CPLR 5222-a – Exemption Notice and Claim Process; (d) CPLR 5230 – Property Executions; (e) CPLR 5231 – Income Executions; and CPLR 5232.

CPLR 5205: The new subdivisions (a) create a new exemption; (b) without limiting any other exemptions; and (c) define the term “banking institution.” Most importantly, the new exemption provides that, if “statutorily exempt payments” are made electronically or by direct deposit into a judgment debtor’s account at a banking institution, then $2,625 (original amount was $2,500 but increased in 2012) is exempt from application to satisfaction of a money judgment. The time frame indicated is within 45 days prior to service of the restraining notice.

The key is that the direct deposits or electronic payments must be “readily identifiable” by the banking institution as statutorily exempt payments. This new language will allow the bank to analyze, prior to restraint, whether the debtor’s account should be restrained from the onset – before the debtor needs to provide any other documentation to establish an exemption. Obviously, as more payment systems, businesses, and governmental agencies move towards direct deposit and electronic payments, the identification process will become even easier; the bank’s internal procedures ought to identify the source of deposits to determine whether any moneys came into the account during the 45-day period which would trigger the $2,625 exemption.

CPLR 5222: The section which authorizes the “restraint” of debtor accounts was amended to (a) revise the notice sent to debtors, either before or with the restraining notice; (b) add an additional presumed exemption for wages; and (c) save debtor’s bank fees for unlawful restraints.

Concerning the revisions to the notice sent to debtors, a specific form must be utilized, which includes additional exemptions not found in the prior notice and more notice concerning the rights of the debtor to obtain free legal counsel or proceed in court without counsel.

As to restraints placed upon a debtor’s account, CPLR 5222 now contains two presumed exemptions, one being that mentioned in CPLR 5205 above, regarding “statutorily exempt payments.” The other new exemption is the presumption that the first $1,920 in an account (which figure adjusts based upon the greater of the state or federal minimum hourly wage) is deemed exempt as wages, unless a court determines that those funds are unnecessary for the reasonable requirements of the debtor and his dependents. This subdivision very effectively takes out of play the restraint of most debtor bank accounts – unfortunately, most debtors live “hand-to-mouth” and bank accounts tend not to contain more than $1,920.

The issue as to bank charges was resolved. Many times, debtors would pay bank fees of $100-$200 for the restraint of their accounts, whether or not the restraint was proper. Now, if the restraint is unlawful, the bank cannot charge any fees to the debtor. This seemingly applies to accounts belonging to debtors who file for bankruptcy prior to restraint, but this issue is left for future determination.

CPLR 5222-a: Perhaps the section that will cause the most stress and confusion to all involved parties, this section sets up the method for notifying debtors of exemptions and the process for lifting the restraints on accounts pursuant to those exemptions. These rules apply to a Sheriff or Support Collection Unit as well as judgment creditors.

First, the judgment creditor’s attorney must now serve (1) two copies of the restraining notice; (2) one copy of the new “exemption notice;” and (3) two copies of the new “exemption claim form.” The specifics of the notice and form are written into the statute.

Second, within two days after the bank receives the above process and notices, it must serve copies upon the debtor by mail.

Third, within twenty days of the postmarked date of the bank’s mail, the debtor must complete the “exemption claim form” (marking the appropriate claimed exemption) and serve one copy on the judgment creditor’s attorney and one copy on the bank.

Fourth, the bank must serve a notice to the judgment creditor’s attorney that it will release all funds in the debtor’s account within eight days unless the judgment creditor interposes an objection to the exemption. Separately, the judgment creditor, upon receipt of the exemption claim form, must instruct the bank to release the account within seven days unless it is objecting to the exemption.

If the account contains commingled funds (exempt and non-exempt moneys), the accounting principle of “lowest intermediate balance” shall be applied. This will require an analysis as to whether withdrawals from the account, which will be considered to be made from non-exempt funds first, reduce the portion of non-exempt funds to a level that necessitates the release of all or a portion of the funds. Most creditors’ counsel agree that, in all likelihood, this accounting principle will result in the release of the restrained account.

The manner in which the judgment creditor’s counsel may object to a claimed exemption is by moving for an Order under CPLR 5240, and including an affirmation showing a factual basis upon which there is reasonable belief that the account contains non-exempt funds. The hearing on the motion will be noticed for seven days after service of the moving papers (* note the divergence from the notice of motion requirements under CPLR 2214). The exemption claim form is deemed prima facie evidence at the hearing, and the burden of proof will be on the creditor (which will be a heavy burden, especially if the debtor does not provide appropriate proof of the claimed exemption). Once the court issues an Order on the motion (to be done within five days of the hearing), the judgment creditor’s attorney must serve a copy of the Order on the bank and the debtor within two days thereafter.

Scary stuff!: If the court determines that the creditor’s objection was asserted in bad faith, the debtor will be awarded costs, reasonable attorney’s fees, actual damages, and an amount not to exceed $1,000.

CPLR 5230/5231/5232: These sections relate to both Property and Income Executions issued by the judgment creditor’s counsel to the Sheriff (or Marshal within New York City). The amendments to these sections mirror the changes mentioned above, and apply to levies made by the Sheriff upon debtor accounts.

The following forms contain the changes pursuant to the Act:

CPLR 5222 Notice to Debtor
Exemption Notice
Exemption Claim Form
Property Execution
Income Execution

Note: Where the debt owed is either to New York State and its agencies or municipal corporations OR if owed for child support, spousal support, maintenance or alimony, then the above rules concerning restraints are not applicable and the restraining notice should state at the top in 16-point bold type: “The judgment creditor is the State of New York, or any of its agencies or municipal corporations AND/OR the debt enforced is for child support, spousal support, maintenance or alimony.”

Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York. He may be reached at (718) COURT-ST or RichKlass@courtstreetlaw.comcreate new email for any questions.

FORM 1

NOTICE TO JUDGMENT DEBTOR

Money or property belonging to you may have been taken or held in order to satisfy a judgment which has been entered against you. Read this carefully.

YOU MAY BE ABLE TO GET YOUR MONEY BACK

State and federal laws prevent certain money or property from being taken to satisfy judgments. Such money or property is said to be “exempt”. The following is a partial list of money which may be exempt:

Supplemental security income (SSI);
Social security;
Public assistance (welfare);
Spousal support, maintenance (alimony) or child support;
Unemployment benefits;
Disability benefits;
Worker’s compensation benefits;
Public or private pensions;
Veteran’s benefits;
Ninety percent of your wages or salary earned in the last sixty days;
Twenty-six hundred twenty-five dollars ($2,625) of any bank account containing statutorily exempt payments that were deposited electronically or by direct deposit within the last forty-five days, including but not limited to your social security, supplemental security income, veterans benefits, public assistance, workers’ compensation, unemployment insurance, public or private pensions, railroad retirement benefits, black lung benefits or child support payments;
Railroad benefits; and
Black lung benefits.

If you think that any of your money that has been taken or held is exempt, you must act promptly because the money may be applied to the judgment. If you claim that any of your money that has been taken or held is exempt, you may contact the person sending this notice.

Also, YOU MAY CONSULT AN ATTORNEY, INCLUDING ANY FREE LEGAL SERVICES ORGANIZATIONS IF YOU QUALIFY. You can also go to court without an attorney to get your money back. Bring this notice with you when you go. You are allowed to try to prove to a judge that your money is exempt from collection under New York CPLR sections 5222(a), 5239 and 5240. If you do not have a lawyer, the clerk of the court may give you forms to help you prove your account contains exempt money that the creditor cannot collect. The law (New York Civil Practice Law and Rules, Article 4 and Sections 5239 and 5240) provides a procedure for the determination of a claim for an exemption.

Very truly yours,

Rich Klass, Esq.

FORM 2

CIVIL COURT: CITY OF NEW YORK COUNTY OF KINGS
——————————————————–X			Index No. 123/2009
ABC COMPANY,
		Plaintiff,
	-against-
JOHN DOE,
		Defendant.
——————————————————–X

EXEMPTION NOTICE

As required by New York Law

Your bank account is restrained or “frozen.”

The attached Restraining Notice or Notice of Levy by Execution has been issued against your bank account. You are receiving this notice because a creditor has obtained a money judgment against you, and one or more of your bank accounts has been restrained to pay the judgment. A money judgment is a court’s decision that you owe money to a creditor. You should be aware that FUTURE DEPOSITS into your account(s) might also be restrained if you do not respond to this notice.

You may be able to “vacate” (remove) the judgment. If the judgment is vacated, your bank account will be released. Consult an attorney (including free legal services) or visit the Court Clerk for more information about how to do this.

Under state and federal law, certain types of funds cannot be taken from your bank account to pay a judgment. Such money is said to be “exempt.”

DOES YOUR BANK ACCOUNT CONTAIN ANY OF THE FOLLOWING TYPES OF FUNDS?

Social security;
Social security disability (SSD);
Supplemental security income (SSI);
Public assistance (welfare);
Income earned while receiving SSI or public assistance;
Veterans benefits;
Unemployment benefits;
Payments from pensions and retirement accounts;
Disability benefits;
Income earned in the last 60 days (90% of which is exempt);
Workers’ compensation benefits;
Child support;
Spousal support or maintenance (alimony);
Railroad retirement; and/or
Black lung benefits.

If YES, you can claim that your money is exempt and cannot be taken. To make the claim, you must (a) complete the EXEMPTION CLAIM FORM attached; (b) deliver or mail the form to the bank with the restrained or “frozen” account; and (c) deliver or mail the form to the creditor or its attorney at the address listed on the form.

You must send the forms within 20 DAYS of the postmarked date on the envelope holding this notice.

You may be able to get your account released faster if you send to the creditor or its attorney written proof that your money is exempt. Proof can include an award letter from the government, an annual statement from your pension, pay stubs, copies of checks, bank records showing the last two months of account activity, or other papers showing that the money in your bank account is exempt. If you send the creditor’s attorney proof that the money in your account is exempt, the attorney must release that money within seven days. You do not need an attorney to make an exemption using the form.

FORM 3

CIVIL COURT: CITY OF NEW YORK COUNTY OF KINGS
——————————————————–X			Index No. 123/2009
ABC COMPANY,
		Plaintiff,
	-against-			EXEMPTION
JOHN DOE,				CLAIM FORM
		Defendant.
——————————————————–X

Name and address of judgment creditor or attorney (To be completed by judgment creditor or attorney) Address A	Name and address of financial institution (To be completed by judgment creditor or attorney) Address B
RICHARD A. KLASS, ESQ. 16 Court Street, 28th Floor Brooklyn NY 11241	BANK 1 Court Street Brooklyn NY 11201

Directions: To claim that some or all of the funds in your account are exempt, complete both copies of this form, and make one copy for yourself. Mail or deliver one form to Address A and one form to Address B within twenty days of the date on the envelope holding this notice.

** If you have any documents, such as an award letter, an annual statement from your pension, paystubs, copies of checks or bank records showing the last two months of account activity, include copies of the documents with this form. Your account may be released more quickly.

I state that my account contains the following type(s) of funds (check all that apply):
( ) Social security;	( ) Income earned in the last 60 days (90% of which is exempt);
( ) Social security disability (SSD);	( ) Wages while receiving SSI or public assistance;
( ) Supplemental security income (SSI);	( ) Payments from pensions and retirement accounts;
( ) Public assistance;	( ) Workers’ compensation benefits;
( ) Veterans benefits;	( ) Disability benefits;
( ) Child support;	( ) Spousal support or maintenance (alimony);
( ) Unemployment insurance;	( ) Railroad retirement or black lung benefits;
( ) Other (describe exemption):

I request that any correspondence to me regarding my claim be sent to the following address:

________________________________________________________________________________
(FILL IN YOUR COMPLETE ADDRESS)

I certify under penalty of perjury that the statement above is true to the best of my knowledge and belief.

Date: _________________

_________________________________
SIGNATURE OF JUDGMENT DEBTOR

FORM 4

CIVIL COURT: CITY OF NEW YORK COUNTY OF KINGS
——————————————————–X			Index No. 123/2009
ABC COMPANY,
		Plaintiff,		EXECUTION WITH
	-against-			NOTICE TO
JOHN DOE,				GARNISHEE
		Defendant.
——————————————————–X

TO THE SHERIFF (or MARSHAL) OF ANY COUNTY, GREETING:

WHEREAS, in an action in the Civil Court of the City of New York, County of Kings, between ABC Company, as Plaintiff, and John Doe, as Defendant, a judgment was entered on February 3, 2009, in favor of Plaintiff and against John Doe, Defendant, 123 Main Street, Brooklyn, NY 11201, in the amount of $1,000, of which $1,000, together with interest from February 3, 2009, remains due and unpaid;

WHEREAS, a transcript of judgment was filed with the Clerk of the County of Kings on February 3, 2009;

NOW, THEREFORE WE COMMAND YOU to satisfy the said judgment from the real and personal property of the above-named judgment debtor, and the debts due to him; and that only the property in which said judgment debtor, who is not deceased, has an interest or the debts owed to him shall be levied upon or sold hereunder; and to return this Execution to the Clerk of the above-captioned court within 60 days after issuance unless service of this Execution is made within that time or within extensions of that time made in writing by the attorney for the judgment creditor.

PURSUANT to CPLR 5205(l), $2,625 of an account containing direct deposit or electronic payments reasonably identifiable as statutorily exempt payments, as defined in CPLR 5205(l)(2), is exempt from execution and the garnishee cannot levy upon or restrain $2,625 in such an account.

PURSUANT to CPLR 5222(i), an execution shall not apply to an amount equal to or less than 90% of the greater of 240 times the federal minimum hourly wage prescribed in the Fair Labor Standards Act of 1938 or 240 times the state minimum hourly wage prescribed in Labor Law 652 as in effect at the time the earnings are payable, except such part as a court determines to be unnecessary for the reasonable requirements of the judgment debtor and his or her dependents.

NOTICE TO GARNISHEE

To:
Address:

BANK
1 Court St., Brooklyn NY 11201

WHEREAS, it appears that you are indebted to the judgment debtor, or in possession or custody of property not capable of delivery in which the judgment debtor has an interest, including the following specified debt and/or property:
all savings, checking, and time deposit accounts; safe deposit boxes; loan security; etc.

NOW THEREFORE, you are required by CPLR Section 5232(a) forthwith to transfer to the Sheriff all personal property not capable of delivery in which the judgment debtor is known or believed to have an interest now in or hereafter coming into your possession or custody including any property specified in this notice; and to pay to the Sheriff, upon maturity, all debts now due or hereafter coming due from you to the judgment debtor; and to execute any documents necessary to effect such transfer or payment; and

TAKE NOTICE, that until such transfer or payment is made, or until the expiration of 90 days after the service of this Execution upon you, or such further time as is provided by any Order of the Court served upon you, whichever event occurs first, you are forbidden to make or suffer any sale, assignment, or transfer of, or interference with, any such property, or pay over or otherwise dispose of any such debt, to any person other than the Sheriff, except upon direction of the Sheriff or pursuant to an Order of the Court; and

TAKE FURTHER NOTICE, that at the expiration of 90 days after a levy is made by service of this Execution, or of such further time as the Court, upon motion of the judgment creditor has provided, this levy shall be void except as to property or debts which have been transferred or paid to the Sheriff, or as to which a proceeding under CPLR Sections 5225 or 5227 has been brought.

Dated:

Brooklyn, New York
January 1, 2013

________________________
RICHARD A. KLASS, ESQ.
Attorney for Plaintiff
16 Court Street, 28th Floor
Brooklyn, New York 11241

FORM 5


CIVIL COURT: CITY OF NEW YORK COUNTY OF KINGS		Index No. 123/2009
ABC COMPANY,
	Judgment Creditor	INCOME EXECUTION

Judgment Debtor (name and last known address):

John Doe
123 Main Street
Brooklyn, NY 11201

To the Enforcement Officer,
GREETING:

A judgment was entered in the within court in favor of Judgment Creditor and the particulars are as follows:

Court of Original Entry:	Entry Date:	Original Amount:	Amount Due:	Interest from:
Civil Court, Kings County	2/3/09	$1,000.00	$1,000.00	2/3/09

The judgment was recovered against John Doe, Defendant, and transcripted with the Clerk of Kings County on February 3, 2009.

This Execution is issued against John Doe, whose last known address is: 123 Main Street, Brooklyn, NY 11201, and whose social security number is 123-45-6789, and who is receiving, or will receive wages of $500.00 for each weekly pay period from the Employer. “Employer” herein shall include any payor of money to Judgment Debtor. The Employer’s name and address is:

XYZ Warehouse, 25 Court St., Brooklyn, NY 11201

You are directed to satisfy the judgment with interest together with your fees and expenses out of all moneys now and hereafter due and owing to Judgment Debtor from the Employer pursuant to CPLR §5231.

Directions to Judgment Debtor: You are notified and commanded immediately to start paying to the Enforcement Officer serving a copy of this Income Execution on you: installments amounting to 10% (but no more than the limits set forth in I. Limitations below) of any and all salary, wages, or other income, including any and all overtime earnings, commissions, or other irregular compensation received or hereafter to be received from your Employer and to continue paying such installments until the judgment with interest and the fees and expenses of this Income Execution are fully paid and satisfied, and if you fail to do within 20 days, this Income Execution will be served upon the Employer by the Enforcement Officer.

Directions to the Employer: You are commanded to withhold and pay over to the Enforcement Officer serving a copy of this Income Execution upon you: installments amounting to 10% (but no more than the limits set forth in I. Limitations below) of any and all salary, wages, or other income, including any and all overtime earnings, commissions, or other irregular compensation now or hereafter becoming due to Judgment Debtor until the judgment with interest and the fees and expenses of this Income Execution are fully paid and satisfied.

Dated:

Brooklyn, New York
January 1, 2013

________________________
RICHARD A. KLASS, ESQ.
Attorney for Plaintiff
16 Court Street, 28th Floor
Brooklyn, New York 11241
718-643-6063

IMPORTANT STATEMENT

This Income Execution directs the withholding of up to 10% of Judgment Debtor’s gross income. In certain cases, however, state or federal law does not permit the withholding of that much of Judgment Debtor’s gross income. The Judgment Debtor is referred to New York Civil Practice Law and Rules, Section 5231 and United States Code, Title 15, Section 1671.

I. Limitations on the amount that can be withheld:

A. An Income Execution for installments from a judgment debtor’s gross income cannot exceed 10% of the judgment debtor’s gross income.

B. If a judgment debtor’s weekly disposable earnings are less than the greater of 30 times the current federal minimum wage ($7.25 per hour) or $217.50, or the New York State minimum wage ($8.00 per hour) or $240.00, no deduction can be made from the judgment debtor’s earnings under this Income Execution.

C. A judgment debtor’s weekly disposable earnings cannot be reduced below the amount arrived at by multiplying 30 times the greater of the current federal minimum wage ($7.25 per hour) or $217.50, or the New York State minimum wage ($8.00 per hour) or $240.00 under this Income Execution.

D. If deductions are being made from a judgment debtor’s earnings under any orders for alimony, support, or maintenance for family members or former spouses, and those deductions equal or exceed 25% of the judgment debtor’s disposable earnings, no deduction can be made from the judgment debtor’s earnings under this Income Execution.

E. If deductions are being made from a judgment debtor’s earnings under any orders for alimony, support, or maintenance for family members or former spouses, and those deductions are less than 25% of the judgment debtor’s disposable earnings, deductions can be made from the judgment debtor’s earnings under this Income Execution. However, the amount arrived at by adding the deductions from earnings made under this Execution to the deductions made from earnings under any orders for alimony, support, or maintenance for family members or former spouses cannot exceed 25% of the judgment debtor’s disposable earnings.

Note: Nothing in this notice limits the proportion or amount which may be deducted under any order for alimony, support, or maintenance for family members or former spouses.

II. Explanation of limitations:

Definitions: a) Disposable earnings – Disposable earnings are that part of an individual’s earnings left after deducting those amounts that are required by law to withheld (for example: taxes, social security, and unemployment insurance, but not deductions for union dues, insurance plans, etc.); b) Gross Income – Gross Income is salary, wages, or other income, including any and all overtime earnings, commissions, and income from trusts, before any deductions are made from such income.

Illustrations regarding earnings: If disposable earnings is:	Amount to pay or deduct from earnings under this Income Execution is:
a) 30 times the greater of the federal minimum wage ($217.50) or the New York State minimum wage ($240.00) or less.	No payment or deduction is allowed.
b) more than 30 times the greater of the federal minimum wage ($217.50) or the New York State minimum wage ($240.00) and less than 40 times the greater of the federal minimum wage ($290.00) or the New York State minimum wage ($320.00).	The lesser of: the excess over the greater of 30 times the federal minimum wage ($217.50) or the New York State minimum wage ($320.00) in disposable earnings, or 10% of gross earnings.
c) 40 times the greater of the federal minimum wage ($290.00) or the New York State minimum wage ($320.00) or more.	The lesser of: 25% of disposable earnings or 10% of gross earnings.

III. Notice: You may be able to challenge this Income Execution through procedures provided in CPLR §§5231(i) and 5240.

If you think that the amount of your income being deducted under this Income Execution exceeds the amount permitted by state or federal law, you should act promptly because the money will be applied to the judgment. If you claim that the amount of your income being deducted under this Income Execution exceeds the amount permitted by state or federal law, you should contact your employer or other person paying your income. YOU MAY CONSULT WITH AN ATTORNEY, INCLUDING LEGAL AID IF YOU QUALIFY. New York law provides two procedures through which an Income Execution can be challenged.

CPLR 5231(i) – Modification: At any time, the judgment debtor may make a motion to a court for an Order modifying an Income Execution.

CPLR 5240 – Modification or protective order: supervision of enforcement: At any time, Judgment Debtor may make a motion to a court for an Order denying, limiting, conditioning, regulating, extending, or modifying the use of any post-judgment enforcement procedure, including the use of Income Executions.

Return (for Sheriff’s or Marshal’s use only)
( ) Fully satisfied on: _____________________	( ) Unsatisfied
( ) Partially satisfied: _____________________	$___________
( ) Because I was unable to find the Garnishee (Employer) within my jurisdiction, I returned this Income Execution to Judgment Creditor’s Attorney on: ______________________.
Date and time received:	_________________________ ( ) Marshal, City of New York ( ) Sheriff, County of

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Analysis of Exempt Income Protection Act by Richard A. Klass, Esq. is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License. For permissions beyond the scope of this license, please contact Mr. Klass (email: ). Insert the words “reprint permission request” in the subject line of the email.

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Article Title:
Analysis of Exempt Income Protection Act

Author Name:
Richard A. Klass, Esq.

Contact Email Address:
RichKlass@CourtStreetLaw.com

Author’s Firm’s Website:
www.CourtStreetLaw.com

Word Count:
4,595 words

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Resource Box

About the Author:
Richard A. Klass, Esq. maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York. He may be reached by phone at (718) COURT-ST [(718) 268-7878)] or RichKlass@courtstreetlaw.com with any questions. Prior results do not guarantee a similar outcome.

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