Exempt Income Protection Act Update: Government Entities Excluded and Compliance

August 13, 2009

Author(s): Kirsten Keefe & Gina Calabrese

The Exempt Income Protection Act (“EIPA”), 1 which went into effect January 1, 2009, ensures safety-net income is available in bank accounts after a restraining notice for the collection of a judgment debt reaches the account.  Covering all bank accounts in New York, the law mandates that $2,500 in accounts containing reasonably entifiable directly deposited exempt income must remain unrestrained. For all other accounts, as of July 24, 2009, $1,740 (reflecting the existing exemption for wages, based on the minimum wage 2) cannot be restrained following the issuance of a restraining notice by a private judgment creditor. 

The law established new procedures for releasing funds above these balances and for notifying the account holder. For a fuller explanation of EIPA, see the authors’ previous article, New Protections Against the Garnishment of Exempt Funds: The Exempt Income Protection Act, and EIPA chart (revised July 2009).  The New York State Banking Department issued a letter to the industry on  January 20, 2009 regarding the new law, available at http://www.banking.state.ny.us/il090120.htm.

Amendment Excluding Government Entities

In response to concerns raised regarding restraints for support orders and restraints issued by governmental agencies, the law was amended in early 2009. 3  Under the 2009 amendments, the provisions of EIPA do not apply when the state of New York, or any of its agencies or municipal corporations is the judgment creditor, or if the debt enforced is for child support, spousal support, maintenance or alimony. 4  In these instances, the restraining notice or levy must contain a legend at the top, above the caption, in 16-point bold type stating:

“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.” 5

Banks handling restraints or levies falling within these categories should process them under the pre-EIPA procedures. The amendment took effect immediately upon signing by the Governor on May 4, 2009, and is deemed to have been in full force and effect on and after January 1, 2009. 6

 
Compliance

In the first six months of EIPA being law, legal services offices throughout the state have received complaints regarding banks’ failure to comply with EIPA.  Individuals have reported that their accounts were restrained even though the account contained less than the threshold amounts of $2,500 for directly deposited exempt income, or $1,716 (the basic wage exemption prior to July 24, 2009) for all other income. One credit union did not understand that the law applied to them and restrained all of the funds in an account under the old procedures. Another institution was assessing a fee for processing a restraining notice combined with an information subpoena, even though the account could not be restrained under EIPA. (EIPA prohibits banks from charging a fee when no funds can be legally restrained. 7)  Simply communicating with bank personnel to educate them about the new law may resolve the problem. Some advocates have found it helpful to send a copy of the authors’ earlier article and accompanying chart, which appeared in the July 2008 issue of the Legal Services Journal and was updated in January 2009, as well as a copy of the Banking Department’s industry letter.  (See links above.) 

There has been some misunderstanding about what banks should do if a consumer has multiple accounts with the institution. The law is clear that the accounts are to be treated separately, the exemption applying to each account. 8  In one case, the bank combined the balances of two accounts held by the same judgment debtor.  The first account had $1,400 in it and the second account had $800. From the $2,200 combined balance  total, the bank subtracted $1,716 and sent a check to the account holder. This depleted all funds in the first account, causing it to close. The remaining $484 in the second account were restrained. In another matter, a bank applied the $2,500 exemption amount to the first account of a client which contained her directly deposited exempt income, but failed to apply any exemption to her second account which contained $453 or to her third account which contained $1,374. 

These cases are clear violations of the law. In the first case, the bank erred not only because the bank combined the accounts and treated them as one, but also because it closed the first account and sent the account holder a check. A further  violation occurred because the bank charged the account holder a restraining notice fee.  (The account holder incurred insufficient funds fees as a result of the closed account, which also must be refunded because they were the result of the bank’s misconduct. 9)  In the second case, the bank should have left the money in each of the accounts unrestrained.

Another issue that has arisen is what banks should do if the restraining notice is intended to collect a judgment issued in another state.  While New York must give full faith and credit to a sister state judgment, the judgment must first be converted to a New York judgment. Otherwise, the judgment is not enforceable in New York.10  A common method for domesticating out of state judgments is the filing procedure under Article 54 of the CPLR.  If the judgment was obtained by default or is a judgment by confession, the general rule is that it cannot be filed and enforced as a domestic judgment. 11  Once converted to a New York judgment, New York’s enforcement rules apply. 12  Therefore, EIPA procedures mandate that the bank or credit union receiving the restraint must leave a base amount of $2,500 or $1,716 in the account, even when the judgment being collected was obtained out of state.

EIPA makes no distinction between individual and joint accounts. The same threshold amounts should be left unrestrained, regardless of whether there is one or more account owners. If funds above the threshold amounts are restrained, but contain exempt income, the account holder (or holders) shall have an opportunity to prove the  restrained funds are exempt and obtain the release of the funds through the notice and claim form  procedures set forth in EIPA. 13  There is no requirement in the law that the account holder prove that the $2,500 or $1,716 exemptions allowed under EIPA are necessary for the reasonable requirements of the judgment debtor. 

We are continuing to monitor compliance and are interested to hear about persistent issues that account holders and their advocates are encountering. Please contact Kirsten Keefe at kkeefe@empirejustice.org or Gina Calabrese at calabreg@stjohns.edu.

Gina Calabrese is a Professor of Clinical Education and Associate Director of the Elder Law Clinic at St. John’s University School of Law. Kirsten Keefe is a Senior Staff Attorney with the Empire Justice Center.      

Footnotes

1  Chapter 575 of the Laws of New York, 2008.
2  When the law went into effect, the exemption amount was $1,716.  Pursuant to CPLR § 5222(i), this amount shall rise in tandem with the minimum wage and therefore, on July 24, 2009, the amount was increased.   
3  Chapter 24 of the Laws of New York, 2009, amending the Civil Practice Law and Rules (CPLR) §§ 5205, 5222, 5222-a, 5230, and 5232.
4  CPLR §§ 5205 (l) and (o), 5222(k), 5222-a (i), 5230 (a), and 5232 (e) and (h).
5  CPLR §§ 5205 (o), 5222(k), 5222-a (i), 5230 (a), and 5232 (h).
6  Chapter 24 of the Laws of New York, 2009, at § 10.
7  CPLR § 5222(j).
8  CPLR §§ 5222(h), (i).
9  CPLR § 5232(f).
10  Matter of Estate of Werner  248 A.D.2d 907, 908, 670 N.Y.S.2d 609, 609 - 610 (N.Y.A.D. 3 Dept.,1998); Blackburn v. Blackburn, 113 Misc.2d, 619, 621 (Delaware Cty. Sup. Ct. 1982).
11  CPLR §5401.  Because many judgments for consumer debts are obtained on default, and sometimes by confession, advocates representing a client who is the subject of an out of state judgment should carefully review the foreign judgment for these issues.
12  CPLR §5402; People's Nat. Bank v. Hitchcock  104 Misc.2d 647, 649 (Broome Cty. Sup. Ct. 1980)
13  CPLR 5222-a.

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