Real Garnishment, Real Life: Can the Bank Really Take My Kid's Money?

Some clients were in the office and were consulting me about some business debts they'd personally guaranteed from a failed business. Facing the prospect of multiple lawsuits, they wanted to know if a bank could garnish their son's bank account.

"Can the bank really take my kid's money?"

The answer is "YES" -- any time two or more persons share a joint bank account, they both (all) own 100% of the amount in the account. Therefore, even though the kid has earned every cent in that account through a long, hot summer of mowing lawns, if Mom or Dad's name is on the account it is subject to being garnished to pay Mom or Dad's debts.

In other words, even though their teenager has spent his entire summer slaving away mowing lawns, and even though Mom and Dad have put precisely NONE of the money that currently exists in sonny boy's bank account, the mere fact that Mom or Dad's name is on the account with their son, means that the entire amount is subject to a creditor's garnishment action. This is because a joint bank account (and its contents) are owned jointly and severally -- meaning that all named account holders hold the money equally, whether they contributed to its contents, or not.

To illustrate, it's helpful to understand garnishment as a legal tool used to collect assets from a third-party (such as a bank) holding someone else's money or property. Stay tuned for a post about garnishment next week, and the landmark legal battle of Popeye vs. Wimpy.

Help! My Landlord told me to get out by tomorrow!

“Help! My landlord has given me 48 hours to leave my apartment and I have no place to go!”

Unfortunately, this was a real life plea I received just the other day.

The man on the phone told me that he’d had a dispute with his landlord (who occupied the bottom floor of a two-story dwelling) that the tenant and his pregnant wife and baby had rented the upper floor.

“Is that legal”, he wondered?

No, it is not legal. Not under Oklahoma law.

In order for a landlord to evict someone, they must file a Forcible Entry and Detainer action with the Small Claims court. That means that must get a court order. And although that is an abbreviated process, it’s going to take more than 48 hours. They cannot just summarily throw you out, or lock you out. If they do, they’re liable for big punitive damages. Nor can they try to “smoke you out” by cutting off the electricity or other utilities.

Bottom line: hold your ground. They cannot throw you out or take any other action to force you out without a court order.

If you have a consumer law issue that you’re concerned about, give me a call. I’d be glad to talk to you without an initial charge.

You can reach me at fbcallicoat@gmail.com or 918 409-2462.

Weasel Words (aka disclaimer): This is not legal advice. This is a general interest blog post. Unless we have a signed representation agreement, I am not your attorney and you are not my client.

Real Life, Real Bankruptcy: Can I Keep My Car?

It's a question I get all the time: "Can I keep my car if I file bankruptcy?"

That answer is a definite "Maybe."

The good news is that in most cases, in Oklahoma where I practice, most debtors have sufficient exemptions to cover their vehicles. In other words, they don't have to worry about the bankruptcy trustee being able to seize and sell their cars for the benefit of their creditors.

Let's back up a bit.

Chapter 7 bankruptcy is known as a "Liquidation Bankruptcy" because theoretically the debtors' property can be seized and sold to satisfy their debts. Certain property is exempt from this liquidation process, however. This is because bankruptcy has a public policy purpose of giving honest debtors (people who owe money) a chance at a "fresh start", i.e. by wiping away their unsecured debts.

For example, in Oklahoma you have an exemption for your home, your clothing, and your furniture. A person couldn't very well make a "fresh start" without clothes on their back, and a roof over their head, and furniture to sleep on. Similarly, Oklahoma law allows each debtor (husband and wife) to exempt an automobile that is worth up to $7,500 each, or $15,000 together. You gotta have transportation, after all.

But that's not the end of the story.

In bankruptcy, you have three -- count 'em, (uno, dos, tres) THREE -- options with secured property (property which is collateral for a debt, like your car): Abandon, Redeem, or Reaffirm.

To heck with the cheese, get me outta this trap!

Let's say you've got a car note, and the new-car-smell and a slick salesman talked you into buying some real genuine faux woodgrain plastic trim, and Corinthian leather seating and a 500 CD changer that you just can't afford. (Never happens, I know, but humor me.) Under bankruptcy law you have the right to abandon or surrender the collateral (in this case, the car) back to the creditor and discharge any remaining obligation to pay the note. It's a quick and relatively painless way to get out from under a car note which is "upside-down", i.e., on which you owe more than the car is worth. But what if you want to keep it?

Let's Make a Deal: Redemption and Reaffirmation

But there are two more options, other than simply abandoning the property back to the creditor. You may also choose to either redeem the property for its fair market value, or reaffirm that property by entering into a negotiated contract with the creditor to keep paying for the collateral.

Pursuant to your redemption rights under 11 U.S.C. 722, you can offer a lump sum payment to the creditor for what the car is actually worth -- as opposed to what you owe on it. This is done by motion, and requires a court order to accomplish. Nonetheless, this could be a good deal if the property has a fair market value that is substantially less than what is owed, AND you have the ability to find a lump sum to offer to the creditors. (For obvious reasons, this is not often possible when the value of the automobile is thousands of dollars. Works great with consumer items like furniture and appliances.)

Reaffirmation (see 11 USC 524(c)(3)) is a binding contract that survives the bankruptcy discharge. It is voluntarily entered into by the debtor and creditor, and it must be approved by the court in some circumstances. Theoretically, they are negotiated anew with new terms for payment, interest rate, term, etc. When a debtor reaffirms a debt, they agree to relinquish their right to a discharge of that debt, and in return keep the collateral (car, etc.) that serves as security for the note or obligation. Because of this "waiver" of their discharge rights, courts are increasingly looking on reaffirmation agreements with a jaundiced eye -- after all, why bother filing bankruptcy if you're going to emerge on the other side with the same debts you had going in to the process? An approved reaffirmation agreement will allow the debtors to continue enjoying that new-car-smell -- for a price.

Yes, No, and Maybe

And that leads us directly to the "Maybe".

Since the courts are increasingly disinclined to approve reaffirmation agreements, there are some big hoops to jump through if a debtor wants to enter into one of these agreements. First and foremost, they must prove to their attorney and to the court that the reaffirmation agreement is in their best interest. This is more difficult than it may seem -- especially so if the car payment is way outta whack (a technical term of art I favor) with the debtor's budget. Let's face it -- if you're making $25,000 a year, you've got no business with a $300 car payment.

Part of that decision necessarily involves whether or not your budget and future income will allow you to pay for the car. If your bankruptcy Schedule I (Income) and your bankruptcy Schedule J (Expenses) don't show sufficient excess income to cover the car payment, prepare to say goodbye to those Corinthian leather seats and that 500 CD changer installed in the trunk, or that $18,000 Harley you bought for Mother's Day. It ain't gonna happen, Bro.

If you are facing financial difficulties and having trouble paying your bills, give me a call. I've been there, done that, and can help you. Whether it's bankruptcy or defense of a lawsuit, I can let you know what the options are. As I often say, I know where the rocks are in this particular river. Let me be your river guide.

Call me at 918 409-2462 or write to me at fbcallicoat@jarboelaw.com for free consultation.

Weasel Words (aka disclaimer): this is not legal advice, this is a general information blog post on the internet. (And if it's on the internet, it's gotta be true, right? Uh ... no.) If you haven't paid me a retainer, you are not (yet) my client and should not rely on any of this information to make any decisions. The law is complicated. The facts even more so. If I could have learned the law by reading blogs, I'd ask for money back from those three plus years of hell I paid for in law school.

The Secret History of the Credit Card

From PBS Frontline: The Secret History of the Credit Card

• Ever wondered why you send your credit card payments to South Dakota instead of Wall Street?
• Why credit card companies are able to change the rate of interest on stuff you already bought?
• Why your credit card can raise its interest rate because you were late on another company's credit card?

These questions and more are answered in a 2004 PBS Frontline Documentary The Secret History of the Credit Card

If you're struggling with credit card debt, give me a call at 918 582-6131 or send me an email (fbcallicoat@gmail.com). My vocation is helping people find financial peace of mind in their lives by eliminating debt. Don't let debt destroy your family's peace. FBC

Go here: http://tinyurl.com/5mtm8

An Economics Reporter's Personal Financial Crisis

New York Times reporter, Edmund Andrews is about to lose his Silver Springs, MD home to foreclosure.

My Personal Credit Crisis

By EDMUND L. ANDREWS
Published: May 14, 2009

If there was anybody who should have avoided the mortgage catastrophe, it was I. As an economics reporter for The New York Times, I have been the paper’s chief eyes and ears on the Federal Reserve for the past six years. I watched Alan Greenspan and his successor, Ben S. Bernanke, at close range. I wrote several early-warning articles in 2004 about the spike in go-go mortgages. Before that, I had a hand in covering the Asian financial crisis of 1997, the Russia meltdown in 1998 and the dot-com collapse in 2000. I know a lot about the curveballs that the economy can throw at us.

But in 2004, I joined millions of otherwise-sane Americans in what we now know was a catastrophic binge on overpriced real estate and reckless mortgages. Nobody duped or hypnotized me. Like so many others — borrowers, lenders and the Wall Street dealmakers behind them — I just thought I could beat the odds. We all had our reasons. The brokers and dealmakers were scoring huge commissions. Ordinary homebuyers were stretching to get into first houses, or bigger houses, or better neighborhoods. Some were greedy, some were desperate and some were deceived.

As for me, I had two utterly compelling reasons for taking the plunge: the money was there, and I was in love.

You can read the rest of Mr. Andrew's story at http://www.nytimes.com/2009/05/17/magazine/17foreclosure-t.html

It's an admirable example of courage and a service to those who will tread the same paths after him; he is writing

about his personal crisis and thus serves as a warning bell in our long, collective financial night.

Mr. Andrews is in the same boat as so many Americans today, who are losing or about to lose their homes to foreclosure. Go read the rest of the story. And then ask yourself,

"Am I so different that this couldn't happen to me?"

If you need assistance with a foreclosure or credit crisis, please call or email me. I can't help Mr. and Mrs. Andrews, but I might be able to help you (or a friend or loved one facing the same difficulties.) FBC

fbcallicoat@jarboelaw.com; 918 582-6131

Frugal Living

Here's a local TV News segment on a local couple who have learned to live within their means. How?

Driving older, paid-for cars; eating at home; paying off credit cards, and perhaps most important of all: saving money.

Good for them -- exactly the sort of "pull-yourself-up-by-your-own-bootstraps" recipe I recommend to my clients.

Watch the video for the financial experts -- one of whom cautions that we shouldn't go too far with this sort of thing. (Hah! What nonsense. Take care of your family first; the economy will take care of itself.)

It made me think of a book I listened to a couple years ago entitled, The Millionaire Next Door.

In that book two academics systematically studied the habits of real millionaires around the country and found that by and large, they lived VERY frugal lives -- driving older cars, not borrowing money, saving, and not living ostentatiously. Nelson Bunker Hunt - the silver speculator and billionaire was famous for flying coach (first class was too expensive, he thought). More recently, Warren Buffet is also known for his very frugal lifestyle.

Want to be rich? It's pretty simple. Do as the rich do. Don't borrow money. Don't waste money. Most important of all: save, save, save.

Want to be poor like everyone else? Just keep doing what you're doing.

FBC




Kudos to Scott Thompson, the NewsOn6, and of course, the Ball family.

Real Bankruptcy, Real Life: Are my Social Security benefits safe from garnishment?

I'm introducing a new blog series today that I'm calling "Real Bankruptcy, Real Life." These are going to be blog posts about real-life questions that arise during the course of my practice. If you have a question you'd like me to address, give me a call at 918 582-6131 -- I'd be glad to help! -- Ben Callicoat

***

Had a client call me the other day whom I'd spoken to previously. As always, I try to help people realize that bankruptcy is not the ONLY option they have -- but instead an emergency tool of last resort to be used in extreme situations only. Bankruptcy is the parachute you pull when the fourth engine of your financial airliner has caught fire and you're going down. And in fact I'd recommended that this particular client avoid filing a bankruptcy case -- not the least of reasons being that his social security benefits were the only source of income and therefore exempt from attachment or execution.

Let me to take half a step back here and explain.

Garnishment and Exempt Property

When you're being sued for indebtedness (because you are not paying some debt that is owed) the plaintiff's purpose is to get a judgment (a court decision and order) to force you to pay them. In order to collect on this judgment, the plaintiff will usually have to find some assets or property to attach. They do this by garnishment -- issuing a court order to someone holding property (such as a bank or an employer) also known as a "garnishee", for the judgment debtor. The court orders the garnishee to turn over the funds in that account to the judgment creditor / plaintiff.

However, among other defenses, each state has a set of exemptions -- laws that make certain property exempt from being taken from you to satisfy a debt. The law recognizes that some things are too basic, too important to being subject to seizure -- usually the basic necessities of life: food, shelter, clothing, for instance.

Oklahoma's excellent exemption statutes -- principally found at Oklahoma Statutes 31 O.S. sec. 1, and following, set forth all of the property interests that the Oklahoma legislature has decided a creditor should NOT be able to get in order to satisfy a judgment. For instance, under Oklahoma law your home and your home furniture are exempt. Also exempt is 75% of your income -- reason being, a person needs income lest they become wards of the state. (See OSCN link above.)

Beware "free" Legal Advice

So back to the story. The client having previously been advised (by yours truly) that his Social Security was safe from attachment, calls me one recent morning and says that his brother is a bank president. And that he, his brother, and another close friend -- by happenstance a retired attorney -- were talking about my advice, and the bank president told my client that I was wrong: his Social Security WAS in fact able to be garnished from his bank account, contrary to what I'd said. And to make matters worse, their mutual friend the retired attorney agreed with the bank president brother.

Whoa! Trouble in River City, Bankruptcy-Man! Had I given this man bad advice? Was I mistaken somehow? Are social security benefits exempt from being attached or not? All of these questions that were raging in someone's mind, if not my own.

Nonetheless, I knew that my previous advice was correct in spite of the fact that two people who should know disagreed with me. (One of them a lawyer!) But I stuck to my guns anyway. "They're wrong" I told the client flatly. "Your brother and the lawyer are just flat wrong." I repeated. "I will look up the exemption statute and call you back," I promised the client.

A quick check of Westlaw (Westlaw search terms "'social security' w/s exempt") pulled up the relevant Oklahoma case law. First case up was a March 2009 Oklahoma Court of Appeals case Ultra Thin, Inc. vs. Lane, 2009 WL 987387 (Okla.Civ.App. Div. 3).

Ultra Thin's fact pattern is substantially similar to my client's query: a judgment creditor had sought a garnishment against a debtor's bank account which had contained social security benefits held for his grandson. On the court's order, the garnishee bank had seized the contents of the account and forwarded them to the judgment creditor. The judgment debtor appealed this seizure on the grounds that the source of the funds was social security benefits which were exempt from attachment by reason of tit. 47 U.S. Code section 407, et seq.

Social Security Benefits Exempt from Garnishment

The Oklahoma Court of Appeals agreed. Social Security benefits are exempt under the federal law cited. In its opinion, the court specifically cites several federal court of appeals cases which held that not only were social security benefits from attachment or execution, they were even exempt after they had been commingled with other non-exempt funds. Case closed.

A quick call back to the client to confirm: "I was right; your brother and lawyer friend are wrong." "Social Security benefits are 100% exempt from attachment or garnishment." A creditor is prevented by federal law from seizing these funds to satisfy a judgment even when a court orders otherwise. Dead bang correct.

Moral of the Story: Don't try this at home

The law is complicated and it changes or evolves with each new opinion or court decision on a given topic. Lay people often mistakenly assume that the law is a simple "cut and dried" matter, when in fact it is not. If the law were that simple, lawsuits could be decided by computer programs. As it is, facts and context matter greatly.

Another lawyer I consulted later -- a creditor's lawyer who had spent years of litigating exactly these sorts of cases -- confided that he had long ago attempted to argue that once the funds were commingled with other non-exempt funds, that they lost their exemption. (He admitted that he had lost those arguments, even back then, however.)

Nonetheless it points out the dangers of relying on other people for your legal advice. Your brother in law who just passed the bar is probably not qualified to answer this relatively simple question unless he has just recently researched this precise question. Even a long-practicing attorney in another field is probably not qualified to say. Similarly, the retired attorney friend of my client in this real-life example, had either not looked at this issue recently, or never looked at this issue and was apparently shooting from the hip when he agreed with their banker friend. And if you're going to rely on non-lawyers -- even if it is your brother (maybe I should say "especially" if it is your brother) for legal advice, I don't know what to tell you -- that's just plain crazy.

It all goes to show, as the ever-wise late, great favorite son of Oklahoma Will Rogers once said, "It's not what folks don't know that's the problem. It's what they know that just ain't so."

Ah yes -- that's it exactly, Will.

Again, if you have a particular debt problem that you need some competent advice about, please call me at 918 582-6131 or send me an email: fbcallicoat@jarboelaw.com. I'm all about helping people and would love to help you as well. fbc

Weasel Words Disclaimer

Disclaimer (a/k/a "Weasel Words"): This is NOT legal advice. This is a general interest blog post. If you haven't paid me a retainer, I'm not your lawyer. And come to think of it, if you are relying on a blog for legal advice without speaking to a lawyer, you are stupid. Or crazy. Or maybe both. You deserve every bad fate which will almost certainly befall you. In fact, please put this blog post down and back away slowly. Thank you.