A judgment creditor, seeking to enforce a judgment has many ways to enforce a judgment in New York. The methods they use depend on the collection lawyer’s strategy to satisfy the judgment or, at the very least, bring the judgment debtor to the table. One way to enforce a judgment is to serve third parties with restraining notices. The attorney for the creditor serves a third party with a restraining notice to place a hold on the debtor’s accounts. The bank or other institution is then required to hold the judgment debtor’s assets. But, what happens if you ignore the restraining notice and allows the judgment debtor access to the asset or transfers the asset (money or property) to the judgment debtor. What is your liability for ignoring the restraining notice as a third-party garnishee?
What Is a Restraining Notice?
In New York, under Article 52 of the CPLR, a judgment creditor may serve a restraining notice on either judgment debtors or third-party garnishees. A third-party garnishee is a person or entity who either owes a debt to a judgment debtor or who is in possession of property in which the judgment debtor has an interest.
One example would be a bank where the judgment debtor has an account. Under CPLR 5222, a third-party garnishee served with a restraining notice by a judgment creditor is forbidden from making any sale, assignment, transfer, or interference of the judgment debtor’s property except upon the direction of the sheriff or marshal or pursuant to an order of the court.
When a third-party garnishee, such as a bank, is served with a restraining notice, CPLR 5222 requires a hold of twice the amount due on the judgment in order to ensure payment of all costs and interest as well as the balance owing to the judgment creditor on the judgment. The third-party garnishee is not required to place a hold on any amount beyond this.
Restraining Notice Exemptions
There are exemptions to the amount that must be held by the financial institution if the judgment debtor is an individual. As of April 1, 2021, if a restraining notice is served on an individual’s bank account, the bank is required to deem any amount below $3,000.00 exempt from restraint and to only place a hold on the amount that exceeds $3,000.00. However, there are no exemptions on the accounts of corporate entities. Additionally, there are other exemptions on individual accounts if the individual receives disability, social security, or pension payments directly deposited into the account. However, after being served with a restraining notice, a bank forwards a questionnaire to the individual account holder. The burden is on the individual account holder to advise their financial institution as to why the account should be exempt from restraint. If the amount is exempt, the bank doesn’t need to hold the account.
Willfully ignoring a restraining notice is a violation punishable by an action for contempt. It subjects to the garnishee to personal liability for the restrained amount available in the account. For example, assuming a judgment creditor has a judgment for $10,000.00, and serves a restraining notice on a bank and the debtor maintained an account that did not contain exempt funds, if the bank willfully ignores the restraining notice, the judgment creditor would have relief against the bank for the amount that should have been restrained. The judgment creditor would then need to start a special proceeding against the garnishee that willfully ignored the restraining notice.
It is also important to note that a judgment creditor, in order to recover, must establish that it sustained damages as a result of the garnishee’s disobedience of a restraining notice. Say, for example, there were no funds in the account at the time of service of the restraint, and the bank ignored the notice, the bank would not be liable for any damages to the judgment creditor. If it were later determined that there was $5,000.00 in the account at the time the restraining notice was served on the bank, the bank could be found personally liable for $5,000.00 plus interest and costs, the amount available in the account at the time of service of the notice.
If you have questions about a debt collection matter, contact Frank, Frank, Goldstein and Nager for a consultation. We have the experience that pays.