By: Robert J. Nahoum
You just heard from your landlord and he tells you the rent check bounced; or maybe you swipe your debit card at the grocery store cash register and the cashier tells you your card has been rejected.Â Turns out, your bank account has been frozen due a debt collection judgment!
In New York, the quickest way for a debt collector to collect on a debt collection judgment is with a frozen or â€œrestrainedâ€ bank account.Â Often, a consumer doesnâ€™t even know there is a default judgment or even that he or she has been sued suit until a check bounces or the ATM wonâ€™t spit out any money.
Under New York law, when a consumerâ€™s bank account is frozen, to account for interest (9% is the NY statutory rate), the bank freezes twice as much as the judgment amount.Â To add insult to injury, the bank will almost always charge the consumer some kind of penalty or administrative fee for restraining the account, usually around $100.00.
What happened when the funds in that account are made up of directly deposited wages?
In 2009, the Exempt Income Protection Act (EIPA) went into effect.Â The lawâ€™s intent is to protect low-income consumers from seizure of exempt income by debt collectors. Under the EIPA, part of the procedure for restraining bank accounts was changed.
EIPA provides as follows:
- When exempt funds are directly (i.e., electronically) deposited into an account within 45 days of the date the restraining notice was served on the bank, the first $2,625 of the account is not subject to any restraint.
- For accounts without directly deposited exempt income, EIPA provides that the first $1,920 (as of fall 2014) is exempt from restraint. This amount tracks New York’s wage exemption, which is based on the current minimum wage.
- EIPA also contains detailed procedures for releasing frozen accounts, which simplify and expedite the process considerably. If any funds are restrained, the account holder should receive a notice and an exemption claim form, mailed by the bank. The accountholder must complete the form within 20 days and mail it back to the judgment creditor’s attorney and the bank, which then triggers various other procedures.
Before EIPA, when the account contained exempt funds, the burden was on the consumer to make a motion to the court to exclude the exempt funds from execution.Â Due to the complexity and overwhelming burden, few consumer ever went to court and made this motion.
Other common sources of income that are exempt from collection include.
- social security;
- public assistance;
- workers compensation;
- unemployment insurance;
- child support, and spousal support or maintenance;
- 90 percent of earnings deposited into a consumersâ€™ bank account within 60 days prior to the date the bank receives the restraining notice.
WHAT TO DO
Beware; a frozen bank account is a symptom of a much bigger problem.Â You have a debt collector hot on your trail and he will stop at nothing until he is paid.Â You as the consumer have many consumer protection tools available to you and should never lie down and make it easier for the debt collector.Â Make him prove his case through competent, admissible evidence.Â Make him comply with debt collection exemptions.Â Make him comply with debt collection laws.Â If he fails to adhere to these laws SUE HIM! Â You may be entitled actual damages, $1,000 in statutory damages and your lawyersâ€™ fees.
If you need help settling or defending a debt collection law suit, stopping harassing debt collectors or suing a debt collector, contact us today to see what we can do for you.
The Law Offices of Robert J. Nahoum, P.C