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Understanding Bank Garnishments under Indiana Law


Understanding Bank Garnishments under Indiana Law


Once you have obtained a money judgment against a party, Indiana law provides a number of different methods for collecting that judgment.  While many of these collection options involve selling garnishable real estate and/or personal property that can take time and involve expenses such as auction costs, the most efficient means of collection involves assets that are already liquid, including amounts held in checking and savings accounts at financial institutions such as banks or credit unions.

The first step for garnishing deposit accounts is determining where the debtor has (or may have) deposit accounts.  Examining prior financial statements and cancelled checks from the debtor is likely to provide this information, to the extent that such documents are available.  The judgment creditor can also determine the location of bank accounts by serving written discovery requests on the debtor or orally examining the debtor at a proceedings supplemental hearing.  It can also be beneficial to just “go fishing” and send bank interrogatories to a number of financial institutions at which it is conceivable that the debtor maintains an account.  The expense of such a fishing expedition is minimal ($5.00 per judgment debtor per financial institution) while the benefit of finding an account can be substantial.  Focusing on financial institutions with locations near the judgment debtor’s residence or place of business or that otherwise have a significant presence in a particular community should provide a reasonable likelihood of success for the judgment creditor.

Once the judgment holder determines the financial institutions that may have deposit accounts for the debtor, the judgment holder must send garnishment interrogatories to such financial institutions.  In order to serve garnishment interrogatories, the judgment holder must have scheduled a proceeding supplemental hearing at which the validity of any bank account garnishment can be determined.  Each garnishment interrogatory will include an order from the court that requires the financial institution to respond to the interrogatory and to place a hold on any funds held in deposit accounts of the garnishee defendant.  Note that federal law provides that financial institutions must determine whether any funds in an account held constitute exempt federal benefits directly deposited into the account, which would primarily include social security and veteran benefits.  The financial institution is prohibited from freezing such federal benefits.

If a garnishment interrogatory is served on a financial institution and that financial institution has an account for the judgment debtor with funds other than federal benefits, the financial institution is required to place a hold on the lesser of (a) the judgment amount, or (b) the amount on deposit in the account.  See Indiana Code § 28-9-4-2.  The financial institution will determine the judgment amount by what is included in the interrogatory.  If post-judgment interest has accrued, calculate the current judgment amount and include it in the interrogatory to avoid leaving funds in an account that could satisfy the judgment.  The hold must be placed for the period of time specified in the order, provided that the order cannot require a hold for more than 90 days.  The hold is maintained until the judgment creditor’s rights in the account can be determined at the proceedings supplemental hearing.  The hold is a recognition of the judgment creditor’s lien against the funds on deposit at the time the interrogatory is served.  If subsequent deposits are made to the account after the hold is put in place, the judgment debtor should have access to those subsequently deposited funds.  If the judgment creditor believes that this is occurring, the judgment creditor can serve additional interrogatories on the financial institution in an effort to capture the additional deposited funds.

It is important to note that if a financial institution that receives a garnishment interrogatory has a loan to the judgment debtor, the financial institution has a right of setoff that is superior to the judgment creditor’s lien, and the financial institution has a right to set-off against the funds held in the deposit account rather than placing a hold on them.  See, Fifth Third Bank v. People’s National Bank, 929 N.E.2d 210, 2014 (Ind. Ct. App. 2010).  However, if the financial institution decides to allow the debtor to access the funds rather than setting off on the funds, the financial institution will lose its superior lien priority and it will have liability to the judgment creditor for not honoring the judgment lien.  See, Gray v. National City Bank, 687 N.E.2d 356, 358 (Ind. Ct. App. 1997).



Judges Are People Too


Judges Are People Too

hagenowWe recently encountered another situation where we were reminded that regardless of what the law may be; a contract may say; or what the court orders may have been to that point in the case, ultimately the decision on how to enforce those things comes from a judge who has his or her own human emotions.  Before a recent hearing, we were having a discussion with our witness about the fact that there are really two aspects to the law: the legal side and the human side.  Interestingly, the witness thought that the human side is supposed to be left “out there on the sidewalk”.  For those of us who have tried a number of cases through a jury trial or to a judge, we know that is not at all the case.  Cases can be won or lost based upon the strength or likeability (or lack thereof) of a particular witness.  Cases also can be lost because even though the law allows for a certain remedy, the judge is just not willing to enforce that under particular circumstances.

In our recent circumstances, there was a widow who had been represented by an elderly lawyer, and the lawyer had fallen ill.  The judge therefore had some concern about how much she had been advised about what had been going on.  Therefore, even though by the various court orders that had been entered, and even though all of the i’s had been dotted and t’s crossed, the judge was reluctant to enter the order that we were requesting until she felt comfortable the widow had retained new counsel and that new counsel had an opportunity to get up to speed on the case.

What does this all mean?  What it means is that there are no guarantees when you go to court.  You can have the best written contract in the history of contracts, or previous court orders that give you the right to do exactly what it is you are asking the court to do at this time, but as soon as you get to court, and there is a human being who is being asked to enter the judgment or make a particular ruling, there are simply no guarantees.  This is a big reason why many cases do settle because by settling the parties retain control over what happens.  As soon as you relinquish that control and allow a judge or jury to make a final determination, it may not matter what the law is or what the contracts say; there is simply no guarantee of an outcome.



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