Business Nightmare

Garnishment.

One word that sends chills through a company payroll department, irritates company officers and costs everyone money.

Yet, garnishments are occurring more frequently as more people fail to meet their personal financial obligations and creditors are using this procedure to get their money.

Carlene Voss, Tulsa County Deputy Court Clerk, said the procedure is complicated and might get the unwary company into legal difficulty — including payment of the monies due — if they either fail to follow or ignore the legal procedures involved.

Garnishments don’t set well with most companies because it adds to their operating costs, Voss continued. Under current state law, they are allowed to recover only $10 per month from the employee’s paycheck.

Employees with garnishments can’t be fired for that reason, she said. That doesn’t mean they can’t be dismissed for failing to perform duties required of their position or other cause.

There are two styles of garnishments. The regular garnishment is a one-time procedure that determines whether a person is employed at a company. The second, a continuing garnishment, is where deductions are taken from a person’s paycheck for a maximum of six months for that one order.

Continuing garnishments can be stacked so one can follow the other, Voss said. Simply, it means this procedure is renewed every six months and will continue until debts are paid.

Garnishments, in most cases, are limited to a maximum of 25 percent of an individual’s paycheck, she said. That can increase to 65 percent of the paycheck when child support is involved, especially when payments are in arrears.

Money isn’t taken out arbitrarily.

A person facing a garnishment action can appeal to the court for relief by responding to the notice within five days, Voss said. Then a hearing is scheduled and a judge can rule on the amount to be withheld each pay period.

Sometimes, the judge has ruled the creditor must refund some of the money that has been paid. That transaction is strictly between the debtor and creditor and does not involve the company.

Sometimes company officers will advise the person facing garnishment to get in touch with the creditor’s attorneys and ‘‘get the matter straightened out,’’ Voss said.

Garnishment actions are the result of unpaid debts involving credit cards, hospital bills, automobile repossessions where the former owner is billed the difference between what the car sold for and the difference in the contract, and child support. There are other cases that run the gamut of the credit spectrum.

The Department of Human Services will file garnishment proceedings when child support is involved, Voss said. The Oklahoma Tax Commission is constantly filing the actions to collect past due taxes.

Bank accounts also are the focus of garnishment actions, she said. When these accounts are targeted, the intent is to recover all the funds as soon as possible.

It is imperative that companies understand how important it is to answer that garnishment summons, Voss said. They have to make certain the bookkeeping department personnel understand and fill out the paperwork properly.

That paperwork, when signed, actually is an affidavit that everything is true and correct.

Many small business people have called this office saying they do not understand questions on the form and don’t know how to properly fill them out, Voss said. The Tulsa County Court Clerk’s office staff regularly assists people with questions about filling out garnishment forms.

Bankruptcy laws that went into effect in November, 2005 will increase the garnishment filings, she said. Before the laws changed, people would turn to the bankruptcy court to escape their debts.

Now almost all fall into Chapter 13 proceedings that require these financial obligations be met.

That increase certainly will add a work load to the court which gets only a $36 filing fee for the regular garnishment and $76 each time the continuing garnishment is filed. There are no other fees collected by the court.

Voss recalled a time when debtor’s prisons were used when people failed to meet their obligations.

Today people are building themselves into their personal debtor’s prisons with their debts, she said.

Garnishment is last action to collect debt

When debts — corporate or personal — hit the past due column warning flags go up and attempts start to collect the money.

Those efforts can involve company letters, collection agencies and garnishments or any combination.

But for Tulsa Attorney Fred Pottorf, a shareholder with Works & Lentz, Inc., it is a procedure that has a mixed success rate.

Sometimes, he said, there are individuals who just cannot pay because they clearly demonstrate they do not have the means, he said. In the worst case scenario, the debtor might be a woman whose salary was garnished. Her ex-husband has left the state and is not paying any child support. The woman notes in her reply for relief to the court that she has six children and needs all available money she can earn to feed them.

The information about the children slipped through during the research portion of the case and those involved realized the woman probably should not have been sued through garnishment in the first place.

Debt collecting starts with company letters.

Most people want to pay their obligations, Pottorf said. When they get behind and receive notices, they try to make some payment arrangement.

When internal collection letters fail, creditors turn to lawyers or collection agencies in the next attempt to get the money.

Again, the debtor is notified that they must pay what is owed.

Lawyers and collection agencies get a percentage of the money collected as their fee — generally about 25 percent.

When companies get garnisheed, it can be possible to get information about their bank or a contract they are working on to garnishee to collect the money, he continued. Even then — and the same applies to individuals — the company can show up in small claims court or file an answer by a court summons on the issue. At that point, the court can set the judgement to settle the matter.

Bank accounts also can be garnished as a legal way of collecting debt.

None of the actions can be taken without notifying the company or person affected, Pottorf said. Garnishment is the last resort in the legal process.

There are some companies that don’t have any idea about what to do when they receive the garnishment notices, Pottorf said. Large companies have entire departments handling garnishment actions.

Pottorf recalled that as laws were being drafted there would be an expense to the business where a person is employed.

The decision was made to allow the company to withhold $10 per month from the person having his or her wages garnished.

The average amount taken from an individual’s paycheck is between $35 to $75. There are exceptions where, is a person is paid monthly that perhaps $400 might be withheld at one time.

If that amount to cover company costs were raised to $50 per month, it would make it more difficult for the debt to be reduced, he continued.

Each garnishment case is treated as an individual issue.

Sometimes the court upholds the exception to the garnishment and orders the creditors to return a part of or all the money that already had been paid.

It’s not often that someone earning $5,000 per month is garnished, Pottorf said. Rather, it is the typical wage earner living from paycheck to paycheck.

The employer has the obligation to tell the employee the action has been filed to give that individual an opportunity to respond. The employee is not hiding from his boss, but from the people that want to be paid.

Some businesses — EMSA and others providing health care — cannot refuse service to anyone, regardless of their ability to pay, Pottorf said. That person needing an emergency ride to the hospital must be served, regardless of whether they are homeless or has an insurance policy that will cover the costs.

Some people seeking help through the bankruptcy court will find themselves in Chapter 13 and continuing to pay creditors.

But that is only about 15 percent, up from 10 percent under the new bankruptcy law that went into effect in November, 2005, he continued. Others will complete the required counseling courses and file for Chapter 7 to liquidate their debts. The number of bankruptcy cases filed during the next 10 years will increase to the level of those under the old law.

‘‘I have never enjoyed and don’t enjoy garnishment work,’’ Pottorf said. Some people will do whatever possible to get out of paying debt while others will do all that is possible to get their obligations paid.

Unsecured loans such as credit cards get a low priority rating when compared to priority payments such as child support and student loans, he said.



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