In this case, a creditor obtained a state court judgment against Dodds and garnished her wages. The garnishment was issued by the state court prior to debtor’s filing bankruptcy. In addition, the garnishment was served and debtor’s employer withheld $214.78 from her wages.

Eleven days after the funds were withheld from debtor’s paycheck, Dodds filed a Chapter 7 bankruptcy. The creditor had not received the garnishment funds as of the date debtor filed bankruptcy.

Debtor’s counsel sought a return of the garnishment funds. The court noted that it was unclear whether the garnishment funds were waiting to be sent from the state court to the creditor, or whether the employer had not yet forwarded the funds to the court. In any event, the court found that title to the garnished wages does not pass to the creditor until the creditor actually receives said funds.

Here, the court reasoned, since the garnishment funds had not actually been received by the creditor when debtor filed bankruptcy, title to those funds remains with the debtor.

The court held that the garnished funds withheld from debtor’s wages are property of the debtor’s estate; and, since the amount of money involved falls within the debtor’s allowed bankruptcy exemptions, the court ordered the funds be returned to the debtor. Matter of Dodds, 147 B.R. 719.

Author: Charles R. Harroun, Attorney at Law