New York City Debt Collection Defense Attorney

LR Credit 22, LLC Sanctioned For Not Timely Honoring Exemption Claim Form

New York's exemption claim form process as recently codified in CPLR § 5222-a acts together with other New York statutes to constitute the Exempt Income Protection Act (EIPA). The act is aimed at protecting the income of small debtors.

The process by which debtors assert their exemptions is elaborate and recently detailed on a prior blog, Midland Funding v. Singleton. But essentially, a debtor has 20 days from its receipt of exemption claim forms to mail them to the bank and to the judgment creditor's law firm. The judgment creditor then has 8 days to file a written objection to that exemption claim, which would trigger a hearing within 15 days of the date postmarked on the executed exemption claim form. At such a hearing, the burden of proof is placed upon the judgment creditor to establish the amount of funds that are not exempt. (CPLR § 5222-a(d)).

The case discussed in this blog,[1] LR Credit 22, LLC through its attorneys Mel S. Harris & Associates served a restraining notice with statutorily required exemption claim forms on a local branch of Northwest Savings Bank, which then forwarded all the documents to its corporate headquarters for processing and service on the debtor. It took Northwest, however, 12 days to process and furnish the form to the debtor.

Ten (10) days after receipt of the restraining notice (the debtor is permitted 20 days to respond), the debtor, through his counsel, served a completed exemption claim form with supporting proof on Mel Harris and on Northwest Bank. The debtor's claimed exemption source was that the funds in his account represented income earned within the last 60 days, 90% of which is exempt under New York law.

Eighteen (18) days after Mel Harris' receipt of the debtor's duly executed exemption claim form, the debtor's counsel reminded Mel Harris to lift the restraint. It did not. Two days later, the debtor's counsel again reminded Mel Harris to lift the restraint. It did not. A "third and final" letter was sent to remind Mel Harris to which it again did not respond.

Mel Harris apparently took the position that it needed not have honored the debtor's exemption claim form because its service exceeded the 20-day deadline in which to mail it. Fatal to its argument, however, was its assumption that the bank immediately mailed it to the debtor. It did not – it took Northwest 12 days to process it and mail it. In other words, Mel Harris and LR Credit refused to honor the exemption claim form because it assumed it was sent two days late.

The debtor then moved the court under CPLR § 5222-a(c)(4) and (g) to hold LR Credit 22, LLC liable under a "bad faith" claim for damages, costs, fees, and penalties.

The court did penalize LR Credit, 22, LLC with a $1,000 penalty and awarded costs and attorneys fees to the prevailing debtor-defendant.

If your New York bank account has been restrained (frozen), call us immediately to discuss your strategy. Time is of the essence.

[1] LR Credit 22, LLC v. Egglston, 37 Misc.3d 653, City Court, City of Jamestown.