Garnishments and Social Security Benefits: Are New Treasury Regulations Unfair to Creditors?

In Virginia, a bank garnishment can work to seize all of the funds held in or deposited into a judgment debtor’s bank account between the date the garnishment is served and the return date specified on the garnishment. Certain monies, however, are exempt from garnishment under applicable law, including social security benefits. Historically, the burden of proof has been on the debtor, and not the bank, to identify to the court those monies in a garnished bank account that constitute exempt social security benefits. This generally required a hearing, and in some cases, bank accounts could be frozen for 60-90 days before the social security benefits could be released. Furthermore, Virginia followed a first-in-first-out rule for garnishments, meaning that social security benefits deposited into an account prior to service of the garnishment could lose protection if subsequent monies were deposited into the account and subsequent withdrawals were made. For example, if $500 of social security benefits were deposited on April 1, $500 of other income was deposited on April 2, $500 was withdrawn on April 3, and the garnishment was served on April 4, thereby seizing a total of $500, none of the garnished funds would be considered exempt. 

Recently, the U.S. Treasury Department has issued regulations (31 C.F.R. 212) that give the banks the power and the obligation to identify and protect directly deposited social security benefits. These regulations preempt state law. Now, when a bank is served with a garnishment for an account into which social security benefits are directly deposited, the bank has two days to conduct a review to determine what funds are protected. During this two-day period, the bank must provide the account holder with “full and customary access” to the protected funds. Thus, the bank must allow checks to clear and withdrawals to take place during the two-day window. The bank cannot freeze the account or it would run afoul of this “full and customary access” language.

Furthermore, if there are direct deposits of social security benefits into the account, then at least two months of social security benefits are protected regardless of when they were deposited into or withdrawn from the account (in contrast to Virginia’s first-in-first-out rule). Accordingly, in the prior example given, the entire balance of the garnished account would be considered exempt. Finally, once the bank determines the amount of the protected funds, the garnishment ends and the bank will not honor the same garnishment for additional funds deposited into the account.  This is in striking contract to Virginia law, which provides that all funds deposited into the account prior to the return date are subject to garnishment. 

The Treasury regulations attempt to balance the interests of the social security recipient, the bank, and the creditor. Without question, the regulations relieve the courts of the difficult task of identifying protected funds. However, since the creditor has no legal right to challenge the bank’s determination, and since it remains unclear how other funds in the account will be treated during the two-day review period, the initial reaction of the creditors’ bar is that the regulations are unfair. If the regulations work to give debtors an additional two-day window to withdraw unprotected funds, then without question, the regulations will negatively impact creditors.    

Docketing a Judgment in Virginia

Quite often in our newsletter articles, we reference the “docketing” of a money judgment obtained by one of our creditor clients. This article takes a step back to explain to the reader what exactly that means, as even some attorneys do not understand the concept or the process of docketing a judgment. “Docketing” is a generic terms that is used to describe the process of recording a judgment in a court of record so that the judgment may be enforced by and through that court. It should not be confused with “the docket”, which generally refers to the list of cases being handled by a court on a particular day.

The Clerk of every Circuit Court in Virginia must maintain a judgment docket book or electronic data storage system in which judgments are recorded. A judgment rendered in a particular Circuit Court in Virginia is automatically recorded in that Court’s judgment book. However, judgments obtained in other Virginia courts, including federal courts and general district courts, are not automatically recorded in every judgment book across the Commonwealth. So, for example, a judgment obtained in the City of Alexandria Circuit Court is not automatically recorded in the judgment book of the Fairfax County Circuit Court. However, every Circuit Court in Virginia permits a judgment creditor to record in its judgment book a judgment obtained in a different Virginia court. This is generally accomplished by submitting a certified abstract of judgment prepared by the court in which the judgment was rendered. The abstract is a simple summary of the judgment that identifies the parties to the underlying action and the amount of the judgment. 

The term “docketing a judgment” is also used to denote the recordation of judgments from other states and other countries (which we generically refer to as “foreign judgments”). While docketing a foreign judgment can require more procedures than docketing a Virginia judgment, if docketed properly, the foreign judgment will be enforceable through the applicable Virginia Circuit Court as if the judgment was initially rendered in that Court. Furthermore, once a judgment is docketed in a particular Circuit Court, it automatically creates a lien against any real property owned by the debtor in that city or county. It is also allows the creditor (with additional procedures) to lien and potentially seize personal property owned by the debtor that is physically located in said city or county. The totality of the benefits of docketing a foreign judgment is beyond the scope of this article.

To learn more about the collection of judgments, please contact our law firm at 703-273-1400 or send an e-mail to law@gross.com. To learn more about Gross & Romanick, visit our website at www.gross.com.