Creditor retains garnishment funds received within two weeks before debtor filed bankruptcy. Court ruled in this case that date garnishment was “served” on garnishee defendant placed garnished funds outside of 90-day window for Trustee to set aside transfer to creditor.

Here, the bankruptcy trustee sought to compel First of America Bank to return garnishment funds received just two weeks prior to the debtor’s filing for bankruptcy. The bankruptcy permits the trustee to obtain preferential transfer funds of $600.00 or more paid to creditors within 90-days prior to the filing of bankruptcy.

In this case, the bank had a judgment against the debtor and, pursuant to that judgment, issued a garnishment against the debtor’s state income tax refund. The garnishment was served on the Department of Treasury, however, the payment was not received until two weeks before Debtor filed bankruptcy.

The issue presented the question as to whether the date of service of the garnishment governed, or whether the actual date the funds were received would prevail. The Court held that the service date would govern and the trustee could not recover the funds. Thomas Bleau v. First of America Bank, 132 B.R. 13.

EDITOR’S COMMENT:

Other Courts have held that the rule to apply is the actual date the creditor “received” the garnishment funds. Please have your own local attorney check the applicable rule for your Credit Union’s jurisdiction.

Author: Charles R. Harroun, Attorney at Law