Introduction: When Your Bank Accounts are Suddenly Frozen
Imagine waking up one day to find your bank accounts frozen. The money in those accounts represents social security income, pension funds, unemployment checks, veteran benefits, worker's compensation, wages within the last 60 days, or some other protected source of income. What do you do? This blog post examines the important 2013 New York Supreme Court case Midland Funding v. Roberts, which provided crucial guidance on claiming exemptions for frozen bank accounts in New York.
The Process for Claiming Exemptions under CPLR § 5222-a
The Civil Practice Law and Rules (CPLR) § 5222-a, part of the Exempt Income Protection Act (EIPA), outlines the process for judgment creditors when restraining bank accounts. They must notify you of the restraint, list the exempt income sources, and provide "Exemption Claim Forms." To claim an exemption, you need to complete and mail these forms to opposing counsel and the bank within 20 days.
If you do so, the account should be released within 8 days unless the creditor formally objects. In case of an objection, the court would set a hearing on short notice to determine the issue. Supporting your claim with proof could help convince the creditor or court to release the account without needing your testimony at the hearing.
The Key Issue in Midland Funding v. Roberts: Who Bears the Burden of Proof?
In the 2013 case Midland Funding v. Roberts, the central question was: who has the initial burden to prove or disprove that the restrained funds are exempt? The New York Supreme Court provided a clear answer: the judgment creditor bears this burden. While debtors are encouraged to provide proof, they are not required to do so to invoke the EIPA protections.
The Court's Ruling: Judgment Creditors Must Prove Exemptions are Inapplicable
The court in Midland Funding v. Roberts (2013) ruled that the judgment creditor, Midland Funding, had to demonstrate the claimed exemptions were inapplicable. Merely submitting the completed Exemption Claim Form serves as prima facie evidence that the funds are exempt. This ruling placed the onus squarely on creditors to disprove exemptions.
Cohen & Slamowitz's Misleading Attempts to Shift the Burden of Proof
In this 2013 case, Midland's attorneys, Cohen & Slamowitz, sought court intervention to challenge the debtor's exemption claim in a misleading manner. They incorrectly argued that the defendant bore the burden of proving the exemptions and had to provide extensive documentation. The court rejected these arguments, noting Cohen & Slamowitz cited outdated cases and made false statements about CPLR § 5222-a requirements.
The Importance of a Hearing under CPLR § 5222-a(d)
The court in the 2013 Midland Funding v. Roberts case also found Cohen & Slamowitz's attempt to frame their motion as one for "summary judgment" improper, as it would dissuade the court from holding a hearing to consider the debtor's testimony as evidence. CPLR § 5222-a(d) specifically refers to a "hearing" and does not provide for resolving these matters solely on paper submissions, which would disadvantage unrepresented debtors.
While the court encouraged both parties to bring witnesses and documents to the hearing, it warned that the defendant's failure to appear could provide a basis to grant Midland's motion denying the exemption claim.
Conclusion: Protecting Exempt Assets for Judgment Debtors
The 2013 New York Supreme Court decision in Midland Funding v. Roberts provided important reinforcement of the protections judgment debtors have under CPLR § 5222-a when claiming exemptions for frozen bank accounts. By clearly placing the burden of proof on creditors to disprove exemptions and emphasizing the importance of hearings, this ruling helped ensure that debtors' exempt funds are shielded from improper restraint.
As of 2024, the key holdings from this 2013 case still apply, with no major statutory changes to CPLR § 5222-a or contradictory court rulings in the intervening years. While the process for claiming exemptions may have evolved somewhat with new technologies and e-filing options, the core legal principles and protections remain firmly in place, thanks in significant part to the Midland Funding v. Roberts decision.
Original blog:
Suddenly your bank accounts are frozen. Your money in that account represents social security income, pension funds, unemployment checks, veteran benefits, worker's compensation, wages within last 60 days, or some other protected source of income. (see prior blog for statutory, non-exhaustive list of exempt sources of income.) What do you do?
The process of how to claim the exemptions is also set forth in our prior blog. Essentially, judgment creditors must:
- Notify you of the restraint;
- List which income sources that are exempt from taking;
- Provide "Exemption Claim Forms," which also list the exempt sources of income and outline the procedure by which to complete the process of claiming them.
If you complete and mail these forms to opposing counsel and to the bank within 20 days, opposing counsel or the bank shall cause your account to be released within 8 days, unless opposing counsel formally objects to your exemption claim in the interim. The court would set a hearing on short notice (while your accounts are restrained) to determine this issue. Supporting your exemption claim with proof could convince opposing counsel and/or the court to release the account without the need for your testimony at the court hearing.
Objections are usually made for a failure to support with documentary evidence the exempt nature of restrained bank funds.
New York State has worked hard to implement as part of the Exempt Income Protection Act (EIPA), CPLR § 5222-A, which is a basic process of mailing completed forms in a timely manner so that you "come forward' to protect your exempt income.
Generally, sending in a completed exemption form indicating the source of the money allegedly exempt triggers the obligation of creditor's counsel to either release the account or object to the exemption claim form through court action. The main issue in Midland Funding v. Roberts[1] is the question, "who has the initial burden to prove (or disprove, I should say) that the money is actually exempt"?
Answer: the judgment creditor.
The judgment creditor bears the burden of demonstrating that the claimed exemptions are inapplicable, according to this New York Supreme Court case. While judgment debtors are "encouraged" to supply proof of the exemptions, they are not required to do so to invoke the protections under the Exempt Income Protection Act.
In Midland Funding v. Roberts, Midland's attorneys, Cohen & Slamowitz sought court intervention to challenge the debtor's exemption claim but did so in a misleading way. Cohen & Slamowitz attempted to shift the burden to the defendant to prove the exemptions. The court stated, "[P]laintiff's counsel's statement that the Defendant/judgment debtor...bears the burden of proving a claimed exemption is simply incorrect." Cohen & Slamowitz cited outdated cases to support its burden-shift attempt. To the contrary, the court stated, the Exemption Claim Form by itself is prima facie evidence that the funds in the debtor's account are exempt.
Cohen & Slamowitz further asserted, incorrectly, that "Defendant failed to comply with CPLR § 5222-a by failing to provide information demonstrating that the funds are exempt, including but not limited to, originals or copies of benefit award letters, checks, check stubs or any other documents that discloses the source of the judgment debtor's income, and bank records showing the last two months of activity." That statement was false because sending that proof is not necessary to comply with CPLR § 5222-a.
The court also found improper Cohen & Slamowitz'' framing the motion as a "summary judgment motion" having the effect of dissuading the court from holding a hearing to entertain the debtor's testimony as a means of evidence to support his exemptions. Opposition to summary judgment would ordinarily require affidavits and paper proof, which would place pro se debtors at a disadvantage. Consistent with EIPA's goal of offering special protection to judgment debtors exempt assets, held the court, CPLR § 5222-a(d), specifically refers to holding a "hearing" and does not provide for generally resolving these proceedings on the papers.
The court did "encourage" both parties to bring to the schedule hearing witnesses and documents to prove or disprove the defendant's claim of exemption. The court further warned that should the defendant fail to appear at this hearing, it could serve as some basis to grant Midland's motion to deny the defendant's claim of exemption.
[1] Midland Funding LLC v Roberts, 37 Misc 3d 617 [Sup Ct 2012].