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Bank Account Frozen? We can help.

A "Restraining Notice," signed and mailed by the creditor's attorney, operates to "freeze" the money in your bank account up to double the amount of the judgment. A restraining notice is a powerful judgment-enforcement tool. It operates on the legal presumption that you were properly served with all predicate notices. Many of our clients are served with legally important documents at outdated addresses. A credible challenge to service is always worth investigating.

If your account has been frozen, contact a New York bank-release lawyer right away. You need to know 1) what money is exempt; 2) how to claim your exemptions to release the account; 3) how to file emergency papers in court to prevent a marshal from taking your money after its been frozen; and 4) how to get your money back.

Bank Release Lawyer Serving New York

New York State has its own set of rules and procedures for claiming exempt funds in a restrained bank account. City, state, and federal laws may protect you. Consult Jesse Langel, Esq. LL.M. for assistance.

Our strategy is to immediately claim applicable exemptions to the amount "attached" (frozen or restrained) while simultaneously applying to the court to vacate (overturn) the money / default judgment that enabled the bank freeze.

Frozen Bank Account Intake Form

How Creditor Restraining Notices Freeze Bank Accounts

A restraining notice in the context of consumer bank accounts is a legal mechanism creditors use to temporarily freeze or "restrain" a debtor's bank account. It's typically used after a judgment has been made in favor of the creditor, allowing them to secure funds from the debtor's account to satisfy the debt.

The notice is served on the bank, not the consumer and it prevents the bank from allowing the debtor to withdraw funds or make payments from the restrained account up to the amount of the judgment. However, certain protections and exemptions are in place to ensure that a debtor has access to some funds for necessary living expenses.

For example, under the New York Civil Practice Law and Rules (CPLR) Section 5222, certain funds, including a minimum balance or funds derived from specific sources like Social Security or disability payments, cannot be restrained. This protection ensures the consumer can still meet essential financial obligations despite the debt recovery process. Consumers need to understand these rights and potentially seek legal counsel if a restraining notice is issued against their bank account.

Procedure for Service of Exemption Notices and Claim Forms in New York

3-Step Summary:

  1. A restraining notice affecting a natural person's bank account necessitates the issuer to provide the bank with the restraining notice, its copy, an exemption notice, and two exemption claim forms with sections titled "ADDRESS A" and "ADDRESS B" completed. Both the notice and forms should be served together with the restraining notice. Noncompliance leads to the restraining notice being void and the bank isn't allowed to restrain the account [CPLR 5222-a(b)(1), Jackson v. Bank of America, N.A., 971 N.Y.S.2d 800 (Sup 2013), order aff'd, 53 N.Y.S.3d 71 (2d Dep't 2017)].
  2. Upon serving an execution by levy to a garnishee bank, the sheriff must present an exemption notice and two exemption claim forms along with the execution notice to the bank. Failure to serve the notice and forms leads to the execution becoming void, and the bank will not levy on the account [CPLR 5222-a(b)(2)].
  3. After receiving the restraining notice, exemption notice, and exemption claim forms, the bank is required to serve the judgment debtor with a copy of the restraining notice, the exemption notice, and two exemption claim forms within two business days. The notice and forms must be served by first-class mail to the judgment debtor's last known address [CPLR 5222-a(b)(3)].

Case Examples:

In Distressed Holdings, LLC v. Ehrler, 976 N.Y.S.2d 517 (2d Dep't 2013), the judgment debtor was denied due process as her bank account was restrained without her receiving the necessary notice and forms, thus not getting the opportunity to claim exemption of her funds.

In LR Credit 21, LLC v. Burnett, 967 N.Y.S.2d 916 (Dist. Ct. 2013), the judgment creditor's property execution sent to a sheriff was void due to non-compliance with procedural rules as the sheriff's execution notice failed to include an exemption notice and two exemption claim forms and the bank didn't serve these documents on the judgment debtor within the prescribed time.

Which Sources of Income are "Exempt" (Protected) from Creditors?

The below sources are not supposed to be taken from your account pursuant to CPLR § 5222-a:

  1. Social security;
  2. Social security disability (SSD);
  3. Supplemental security income (SSI);
  4. Public assistance (welfare);
  5. Income earned while receiving SSI or public assistance;
  6. Veterans benefits;
  7. Unemployment insurance;
  8. Payments from pensions and retirement accounts;
  9. Disability benefits;
  10. Income earned in the last 60 days (90% of which is exempt);
  11. Workers' compensation benefits;
  12. Child support;
  13. Spousal support or maintenance (alimony);
  14. Railroad retirement;
  15. Black lung benefits; and/or
  16. COVID-19 stimulus relief for individuals and families with children.

These exemptions are crucial in ensuring that individuals and families have access to essential income and support to meet their basic needs and maintain financial stability, even in the face of a money judgment. However, it's essential to consult with a knowledgeable attorney to fully understand how these exemptions apply in your specific situation and ensure your assets and income are adequately protected.

The Exemption Claim Process for Frozen Bank Accounts in New York

Elements of the Exemption Claim Process:

  1. Complete the exemption claim forms.
  2. Sign the forms under penalty of perjury.
  3. Serve the forms within 20 days of the postmark date on the notice.
  4. Serve one completed form on the banking institution and the other on the judgment creditor's attorney.
  5. If no attorney, serve the form directly on the judgment creditor.
  6. Service can be done in person or by first-class mail.

Additional Information:

  • Providing documentary evidence is optional, not mandatory.
  • Failure to submit documents doesn't invalidate the exemption claim form.

If you need help, call us at (888) 271-7109, or complete this form.

Procedure for Hearings and Decisions Regarding Exemption Claims in New York

2-Step Summary:

  1. The hearing to decide a motion to deny the exemption claim should be scheduled for seven days after the service of the moving papers. The executed exemption claim form is prima facie evidence that the funds in the account are exempt. The judgment creditor has the burden of proof to establish the amount of funds that are not exempt [CPLR 5222-a(e)(1)].
  1. The court must issue an order within five days of the hearing, indicating whether the funds in the account are exempt and outlining the appropriate relief. The judgment creditor or its attorney must serve this order on both the banking institution and the judgment debtor within two business days after the court issues the order [CPLR 5222-a(e)(2)].

Debtor's Burden of Prove Exempt Funds

The responsibility for asserting and providing evidence of an exemption lies with the judgment debtor, as affirmed in Freeman v. Freeman, 464 N.Y.S.2d 676 (Sup 1983).

However, a court of equity will not allow the impairment of these exemptions unless there is a good reason. The creditor must demonstrate more than a mere interest in repayment. They must show that the debtor is not deserving of the claimed exemptions.

When is an "Asset Turnover" or "Turnover Order" Necessary?

An asset turnover becomes necessary when a debtor fails to satisfy a judgment debt voluntarily. When a court has ruled in favor of a creditor, the debtor is obligated to pay the owed amount. If the debtor fails to do so, the creditor can use various means of enforcement to collect the debt.

One such enforcement measure is an asset turnover. In this situation, the court may order the debtor to "turn over" or transfer certain assets or funds to the creditor in order to satisfy the debt.

This generally applies to assets or funds that are in the debtor's possession or control. These can include bank accounts, receivables from third parties, or other forms of personal property.

Before a turnover order can be granted, the creditor usually needs to prove to the court's satisfaction that the debtor possesses or controls the assets in question, and that these assets can be used to satisfy the debt. The specific requirements and procedures can vary by jurisdiction.

A Turnover Petition Needed to Levy Against against a Joint Bank Account under New York Law

In New York, a judgment creditor can levy a debtor's bank account, including a joint bank account, by serving a restraining notice on the bank. The bank is then obligated to freeze the debtor's assets up to the amount of the judgment.

However, when it comes to joint bank accounts, New York law generally presumes that all the funds in the account belong equally to the account holders. If the other account holder is not also a judgment debtor, only half of the funds in the account can be restrained or levied to satisfy the judgment.

Need Help with A Restrained Bank Account?

Joint Bank Account Frozen? Creditor Needs a 'Turnover Order' to Get Access

In ourprior blog with the above title, we emphasized the following nine points:

  1. In New York, a creditor needs a "turnover order" to access funds from a jointly-held bank account due to the unconditional interest of both holders to half the funds.
  2. A turnover order is also necessary when a debtor or garnishee doesn't honor an execution, per New York CPLR § 5225.
  3. After a judgment for a debt is issued, the creditor investigates to discover the debtor's money or property for debt satisfaction. This is called a disclosure.
  4. If the creditor identifies money or property that can be claimed to satisfy the debt, they can seek a court order for turnover of the assets.
  5. The creditor files a motion to the court identifying the asset, explaining why it's available to satisfy the debt, and requesting the court order its turnover. This motion must be served to the debtor.
  6. The court may order the debtor or another party holding the debtor's asset to turn it over. A sheriff is usually appointed to obtain the money or property from the debtor.
  7. If the asset is with a third party, the motion must be served to both the debtor and the party in possession. The court hears from all interested parties and then decides whether the creditor can claim any of the money or property.
  8. A court may award costs against a debtor or intervening party if they unnecessarily delay the process without a valid claim.
  9. Individuals unsure about their legal rights and obligations regarding court orders for asset turnover to a creditor are advised to seek legal counsel.

What's the difference between "levy" and "restrain" in the context of a bank freeze?

In the context of debt enforcement and the terminology used in a restraining notice, "levy" and "restrain" have distinct meanings:

  1. Levy: This refers to the act of officially seizing the debtor's property to satisfy a judgment debt. When a levy is placed on a property, the property is actually taken under legal control by the judgment creditor, typically through a sheriff or another court officer. For example, in the case of a bank account, when a levy is made, funds are actually removed from the account and delivered to the judgment creditor.

  2. Restrain: This refers to the action of temporarily freezing or holding the debtor's property, preventing the debtor from disposing of or making any transactions with that property. In this scenario, the property still remains in the possession of the debtor but its use is limited. For instance, in the case of a bank account, a restraint would prohibit the account holder from withdrawing funds, but the funds remain in the account and are not delivered to the judgment creditor unless further legal action is taken.

In essence, a levy is a more aggressive measure that results in the creditor taking the property to satisfy the debt, while a restraint is a protective measure designed to preserve the property while the legal process continues.

Click the below graphic to learn the law about how creditors secure their default judgments in the first place:

What is a "Notice to Judgment Debtor or Obligor" and Why is it Important?

A "Notice to Judgment Debtor or Obligor" is a formal communication sent to an individual against whom a judgment or order has been entered. The notice informs the judgment debtor that their money or property may have been taken or held to satisfy the judgment. It also explains their rights and protections under state and federal laws, particularly regarding exempt funds and assets that cannot be used to satisfy the judgment.

Importance of a "Notice to Judgment Debtor or Obligor":

  1. Informing the Debtor: The notice serves as a vital means of communication, ensuring that the judgment debtor is aware of the legal actions taken against them and the potential impact on their finances.

  2. Exemption Awareness: The notice lists specific categories of money and property that may be exempt from collection, ensuring the debtor knows which assets are protected under the law.

  3. Urgency: The notice emphasizes the importance of acting promptly if the debtor believes any of their money or property is exempt. This urgency encourages the debtor to take appropriate steps to protect their exempt assets.

  4. Legal Counsel: The notice informs the debtor about their right to consult an attorney, including free legal services if eligible. This ensures that the debtor is aware of their legal options and can seek professional advice to protect their interests.

  5. Court Procedure Explanation: The notice explains the legal procedures available for the debtor to establish the exempt nature of their money or property under specific Civil Practice Law and Rules (CPLR) sections.

  6. Compliance with Legal Requirements: Providing a notice to the judgment debtor fulfills legal requirements and constitutional objections. It ensures that the debtor is properly informed and can participate in the legal process related to the collection of the judgment.

  7. Balance of Rights: The notice helps strike a fair balance between the interests of the judgment debtor and the judgment creditor, ensuring that the debtor's rights are protected during the enforcement of the judgment.

Overall, a "Notice to Judgment Debtor or Obligor" plays a crucial role in upholding consumer rights, ensuring transparency, and facilitating fair enforcement of judgments while protecting exempt assets. It empowers the judgment debtor with essential information and the opportunity to take appropriate action to safeguard their finances.

Notice to Judgment Debtor and Exempt Money: Understanding CPLR 5222(e) and (f)

Summary of CPLR 5222(e) and (f):

  • Subdivision (d) requires the judgment debtor or obligor to be served with a notice along with the restraining notice if such notice has not been given within a year before the restraining notice's service.
  • The notice should be sent by first-class mail or delivered personally to the judgment debtor's known address, place of employment, or any other known address.
  • Subdivision (e) specifies the content of the notice to be included in the restraining notice.
  • The notice informs the judgment debtor about the possibility of certain money or property being exempt from collection, listing various exempt categories.
  • The debtor is encouraged to act promptly if they believe their money is exempt and can contact the sender of the notice.
  • The debtor is also informed about the option to consult an attorney, including free legal services if eligible, to help prove the money's exemption.
  • The law provides a procedure for determining a claim to an exemption under CPLR sections 5222-a, 5239, and 5240.
  • Subdivision (f) clarifies that an "order" refers to a court-issued directive for support, alimony, or maintenance, with exceptions for retroactive child support obligations.

Summary of CPLR § 5222: "Restraining Notice"

The below summary of CPLR § 5222 provides a concise and easy-to-understand overview of the actual statute, composed of legal terminology and statutory language that can often be difficult to decipher for those without a legal background.

CPLR § 5222 governs the issuance and service of restraining notices and the specifics regarding the implications for judgment debtors and those who hold the debtor's property.

(a) Restraining Notice Issuance and Service: A restraining notice intended to freeze a bank account is issued by the court clerk, the creditor's attorney, or the support collection unit. This notice is served to anyone except the debtor's employer when the property is wages or salary. It's served personally, by registered or certified mail, regular mail, or electronic means. It includes details of the judgment or order and a warning about potential contempt of court penalties for non-compliance. An amended notice is issued if there's an interest rate change during a restraint.

(b) Effect of Restraint and Duration: Upon receiving the notice, a debtor is prohibited from transferring or interfering with any property they own, unless directed by the court or sheriff, until the debt is settled or the order vacated. Any property or debt in the debtor's possession becomes subject to the notice. Those who are not the debtor but are served with the notice should not transfer or dispose of any property or money involved until the judgment is satisfied, vacated, or one-year passes.

(c)Subsequent Notice: A court's permission is required to serve more than one restraining notice on the same person for the same judgment. A creditor cannot serve more than two notices per year on a natural person's bank account. If the interest rate changes during a restraint, an amended notice is issued without court permission.

(d) Notice to Judgment Debtor or Obligor: If the debtor hasn't received a notice within a year before the restraining notice, a copy of the restraining notice, along with the notice to the debtor, should be mailed to them within four days of the service of the restraining notice.

(e) Content of Notice: The notice to the debtor should inform them that their money or property may have been taken or held to satisfy a judgment and provide a list of money or property types exempt from being taken to satisfy judgments.

(f) Definition of "Order": An "order" in this context refers to a directive from a competent court requiring payment of support, alimony, or maintenance upon which a "default" has been established.

(g) Electronic Restraining Notice: With written consent, a restraining notice can be served in an electronic format, such as magnetic tape. However, notice to the debtor must still be given in written form.

(h) Effect on Accounts Receiving Exempt Payments: If an account has received direct deposits of statutorily exempt payments within the 45 days prior to the notice, the bank should not restrain $2,500.00 in the debtor's account. If the account contains less than this amount, the notice is void.

(i) Effect on Debtor's Banking Account: A restraining notice should not apply to amounts equal to or less than 240 times the federal or state minimum hourly wage, whichever is greater unless a court determines the amount is not necessary for the debtor's reasonable requirements.

(j) Bank Fees for Processing Restraining Notice: If a bank served with a restraining notice cannot lawfully freeze a debtor's account, or a freeze is imposed in violation of any section of this chapter, the bank should not charge the debtor any fee.

(k) State of New York as Creditor Exceptions: The provisions in sections (h), (i), and (j) don't apply when the creditor is the state of New York, its agencies, or municipal corporations, or if the debt being enforced is for child support, spousal support, maintenance or alimony. These exceptions should be clearly stated in the restraining notice.

Bank Account Freezes in New York: Understanding the Double Judgment Rule

When a judgment creditor serves a restraining notice on a bank in New York, the bank may freeze up to double the judgment amount to cover accrued interest and collection expenses. This practice strikes a balance between protecting the creditor's interests and allowing the debtor some financial flexibility.

In this post, we explore the reasons behind this "double judgment rule," its legal basis in cases like Aspen Industries, Inc. v. Marine Midland Bank, and how it interacts with exemptions that protect certain funds from being frozen. By understanding these key concepts, you'll be better equipped to navigate a bank account freeze in New York.

Vacating a Default Judgment in New York: 8 Fine Points