Recently, a federal court declared Georgia’s garnishment statute unconstitutional leaving the short-term future of garnishments uncertain. While the decision technically affects only the Clerk of Gwinnett County, other clerks in Georgia have already taken action to halt garnishments. Likewise, attorneys and creditors have now lost the defense of complying in good faith with existing law after the publication of this decision. Finally, credit unions could also be liable for complying with garnishments.
The decision in Strickland v. Alexander held that Georgia’s garnishment statute is unconstitutional for three reasons: (1) it fails to require notice to debtors of certain state and federal exemptions to garnishment (like Social Security exemptions); (2) it fails to provide notice of a procedure to claim an exemption; and (3) it fails to require a timely hearing to decide exemption claims. The court enjoined Gwinnett County’s State Court Clerk from issuing summons of garnishment using current forms and procedures that were ruled unconstitutional. The facts of the case create a compelling story for the debtor.
As a result of illness, Strickland defaulted on a Discover credit card, and Discover obtained a judgment against him. Later, Strickland was injured at work and obtained a workers’ compensation settlement, which he deposited into an account of J.P. Morgan Chase. Discover, through its attorney, filed a garnishment against Chase for Strickland’s funds. After Chase froze the funds, Strickland received notice of the garnishment and notice that certain exemptions may apply. Strickland visited a local branch and was instructed to contact Chase’s counsel, who did not resolve the matter. After Strickland’s funds were paid into the registry of the court, Strickland filed a claim with the court that he held a superior interest in those funds because they were workers’ compensation benefits. Discover disputed the claim, and the court set a hearing on Strickland’s claim seven weeks later. The day before the hearing, Discover dismissed the garnishment action. Strickland received his funds back, but only after nearly four months passed from the date that they were frozen.
Strickland initially filed his lawsuit against the Clerk of Gwinnett State Court, Discover (the creditor), the creditor’s law firm, and Chase (the bank holding Strickland’s funds) alleging violations of the U.S. and Georgia Constitutions, and seeking injunctive relief and money damages. Discover settled with Strickland. The court granted Chase’s motion to dismiss, and the creditor’s law firm prevailed on their defense. This left only the Clerk.
The court concluded that the Georgia garnishment statute is unconstitutional and enjoined the Gwinnett State Clerk from issuing garnishments inconsistent with the opinion. In evaluating the Georgia garnishment statute, the court noted deficiencies with the process of explaining exemptions a debtor could assert, a lack of a requirement for service of the garnishment answer on the debtor, an “arcane” procedure to assert exemptions with no clarity, and no time frame for trial if a debtor or others assert a superior interest in the funds. Each of these deficiencies, according to the court, deny a debtor’s due process rights.
WHAT DOES THIS MEAN?
The court’s analysis leaves three required fixes. First, to comply with due process, a notice of exemptions must be included with the garnishment action. Since the court found that Chase’s letter notifying the debtor of exemptions did “not satisfy the State’s duty,” we believe that the legislature will have to amend the statute before further garnishments can be filed. Second, to comply with a due process notice for procedures, the statute must be fixed by providing the debtor with notice that procedures exist to assert exemptions with a recommendation to obtain legal counsel. Finally, to fix the deficiencies related to timeliness of the hearing on claimed exemptions, the statute must either provide a short deadline, or require that hearings be “prompt” or “expeditious.” Georgia’s statute, on the other hand provides no time frame.
EFFECTS OF THE RULING
It is a clear that, absent an unlikely reversal on appeal, the Georgia legislature will be required to fix the Georgia garnishment statutes in early 2016. The court foreclosed the probability of the Clerk or parties addressing the notice requirement by themselves. And while the Chief Judge could act to establish an expedited hearing process for claims on a county-by-county basis, without fixing the other defects, the partial effort would not remedy the entire problem.
At the time of the publication of this alert, the courts in Gwinnett and Fulton Counties have effectively stopped issuing garnishments and put existing garnishments in limbo.
While garnishments are an effective tool for post-judgment collection, they are not the only tool.
Creditors can still use personal property foreclosures, levies, charging orders, and other advanced techniques to recover until the garnishment statute is fixed. Credit unions should talk to their counsel about alternative collections methods while the garnishment statute is unclear. Credit unions should also seek immediate counsel from their attorneys regarding actions to take should they be served with a garnishment.
Disclaimer: The information contained in this article is for informational purposes only and is not legal advice or a substitute for legal counsel. It does not constitute advertising or solicitation. The information in this article may or may not reflect the most current legal developments; accordingly, this article is not guaranteed to be complete, and should not be considered an indication of future results.