Thursday, November 29, 2012

Bankruptcy Law, The Law of Debtors and Creditors Problem Set Answers, Warren Westbrook Sixth Edition - Problem Set 3

 Problem Set 3, p.70
  • 3.1 A

    -Feb 1., First finance obtains $3000 judgment against Wayne and delivers writ of garnishment to sheriff on Amos Bank, where Wayne has his checking account.-Account overdrawn for $10.
    -Feb. 5, Wayne deposits $5000 in checking account.
    -Feb. 7, Second finance co. obtains judgment against Wayne for $3,500, delivers writ to Amos bank.
    -Feb. 9, both writs served against bank at same time.  

    • $4990 is subject to garnishment ($10 overdrawn, which bank gets).
    • Who gets paid?  Depends on state law.
    • i,e. which writ of garnishment got to sheriff first?  which writ of garnishment was served first?  
      • Amos State Bank can offset the $10.
      • The first writ was issued on Feb.1, the second on Feb.7, and the sheriff served both on Feb. 9
      • There is a temporal net of 14 days for the garnishment. Is the net for the benefit of the garnishee to get their stuff together? Or maybe for the benefit of the Judgment Creditor to get as much money out of the account as possible. Pottow: the latter.
      • 14 day net starts on service. Can take all the money that comes into the account during those 14 days.
      • Can bank allow money to be withdrawn from the account? Is it on notice and has to freeze the account.
      • Can JD get notice of the garnishment?
      • Which one has priority? JC 1 or JC 2? It depends on the state laws. The date of levy is not always the controlling date for determining priority. In many states, JC1 still wins because its perfection is backdated to the date the sheriff got the writ. Some states use different rules, like the date of judgment or date of the sheriff’s levy.
  • 3.1 B:

    -Wayne did not know about garnishment, and wrote a $500 check to telephone company on day of the writs.
    -Bank paid check by mistake on Feb. 10.
    -Ignorant of garnishment, Wayne deposits $200 in account on Feb. 11.
    -Feb 15, five days before answer due, bank answers garnishment writ.
    -Feb 16, day after bank answer filed, Wayne's employer makes electronic deposit to Wayne's account: $300.  
      • The bank is responsible for the $500 check paid to the telephone company on Feb.9, though another $500 (200+300) comes back to the account. Because the bank disobeyed the order of garnishment. From Webb v. Erickson, the garnishee may be responsible for the entire judgment, because he totally ignored the order, not just a mistake.
        -UCC 4-303: The bank is given a reasonable period to act before being liable.
      • Bank may also be liable for $200 until it answers the writ.  ($5190 total)
        -After the answer, later deposits by the employer are not garnished. 
  • 3.2: 
    Oct. 15, Judgment Collections, Inc. delivered to sheriff writ of garnishment addressed to Chuck Nicholson.
    -Writ answered Nov. 4th: has office equipment belonging to Baker, judgement debtor.  States that he is leasing it.  Neighbor says that he's just keeping it as a favor.
    -Who is entitled to the office equipment?
      • The issue here is a fraudulent conveyance to avoid garnishing of assets. You can garnish the lease payments and get the assets when it is done even if you can't get the actually property.
      • If it is a fraudulent lease then the lessor is just the owner and can be garnished directly.
      • What about the fraud? If it is a fraud, who will get the equipment? 
        •    If Chuck did not have lease @ time of writ (entered a lease AFTER writ), garnishor steps in debtor's shoes on the date of service.  All garnishable.
        •   If Chuck did have a lease BEFORE writ, Step in Chuck's shoes as of the date.  
        • What rights did Chuck have?  The right to get paid, the right to get the goods during the lease.  Can't execute against the good's themselves.
  • 3.3:
      •  You can not fire an employee for a writ of garnishment.  However, if there is a second writ, it is alright to fire an employee.
      • 15 U.S.C.A. § 1674 the Consumer Credit Protection Act
§ 1674. Restriction on discharge from employment by reason of garnishment
(a) Termination of employment
No employer may discharge any employee by reason of the fact that his earnings have been subjected to garnishment for any ONE indebtedness.
(b) Penalties
Whoever willfully violates subsection (a) of this section shall be fined not more than $1,000, or imprisoned not more than one year, or both.


3.1. Feb. 1st: FFC had $3k judgment on Wayne and delivered a writ of garnishment to the sheriff for service on Amos Bank, where Wayne had his checking account. On this date, the account was overdrawn by $10. On Feb 5th, Wayne deposited $5k. On Feb 7th 2nd Finance Co. obtained a judgment on Wayne for $3.5k and delivered a writ on Amos Bank. Sheriff served both writs on Feb. 9th.
  • Preliminary analysis: ABS will have to turn over all the money in the account. FFC likely has priority so they get paid $3k first. $2k will then go to 2nd Finance Co. ABS should not honor any checks of Wayne and freeze his account until further court order or be liable for any dissipation in assets. Also, bank may setoff any outstanding loans to Wayne first.
3.2. October 15 JCI delivered writ of garnishment on Chuck. Chuck answered on November 4, saying he had equipment belonging to Baker (judgment debtor). He stated he leased it on October 1 for 1 year. Doyle says Chuck was keeping it for Baker. Doyle says she was present for the lease signing on October 20, and not October 1. How will it be solved? Who is entitled to the property depending on Doyle’s credibility?
  • Trial on the fact of whether the lease is valid. If Doyle is credible JCI has a right to the property.
3.3. Employer wants to fire an employee when it received a notice of a garnishment of wages.
  • What do I advise? What are possible consequences for wrongfully firing? Are there any risks besides an employee suit?
  • §304 of the Consumer Credit Protection Act, 15 USC §1674 – “No employer may discharge any employee by reason of the fact that his earnings have been subjected to garnishment for any one indebtedness.”
  • Faces a fine and imprisonment up to 1 year!
  • 15 USC 1673 :sets out the maximum allowable garnishment:  the lesser of 25% of disposable earning for the week OR amt by which disposable earning for that week exceed 30 times the Federal minimum wage, unless its for child support.

 Problem Sets: Table of Contents 

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