Garnishing the Congressional Intent: Protecting Debtor Wages in Bank Accounts Under the Federal and Louisiana Wage Garnishment Exemption Statutes

• Author: G. Wogan Bernard
• Pages: 233-260

Page 233

G. Wogan Bernard: I am deeply grateful to Professor Jason Kilborn and Professor Mark E. Hoch for their invaluable encouragement and guidance during this endeavor. I would also like to thank my family members and friends for their constant support and tolerance, especially my wife Katherine.

Introduction

It would be a sheer, ineffectual folly to argue that compensation is exempt until it touches the hands [of the debtor] or the bank checking account and from that instant is completely available to a creditor possessing an attachment order. If that be the case, where is the exemption? ¹

Imagine two employees named Adam and John who work for the same company. Both have the same occupation, work the same amount of time, receive the same benefits, and deduct the same amount of taxes from their paychecks. At the end of each month, Adam and John receive their monthly paycheck, each totaling $1,000. This monthly payment is the only source of income for Adam and John, and both employees subsequently deposit their paychecks into a personal checking account. Both employees owe a debt of $1,000 to the same creditor.

Since both Adam and John are delinquent in their debt obligations, the creditor seeks repayment. In November, in conformity with the appropriate federal and state garnishing laws, the creditor garnishes twenty-five percent of Adam's wages. As a result, Adam receives a check for only $750, which he deposits into his checking account.

At the same time, John receives his usual check of $1,000 and deposits it into his checking account. The balance in his checking account is $1,000, resulting solely from his November paycheck. The next day, the creditor presents the bank with a writ of garnishment for the funds in the bank account encompassing all $1,000. John argues that under the wage garnishment laws, the creditor should be entitled to only twenty-five percent or $250 of the $1,000 in his bank account. If the creditor succeeds, John will have no funds for an entire month upon which to live. Page 234

Since the ruling in Dunlop v. First National Bank of Arizona,² some federal and state courts have ruled that wages are not exempted from garnishment once they leave the employer's possession. As a result, in the situation presented above, John would lose his entire $1,000. However, there are some state courts that have reached the opposite result. After examining their state statutes, some courts have concluded that the wage garnishment exemption should extend to wages deposited into a bank account.³

This article addresses the question whether wages should be exempted from complete garnishment after they are deposited in a financial institution based on the federal and the Louisiana statutes. The article examines the issue in two parts. Since it is necessary to contrast Louisiana's wage garnishment statute with the federal statute, Section I first examines the question of wage garnishment under the federal statute. Section I-A develops the background of the federal statute and the reasons for its enactment. Section I-B considers the case law commencing in Dunlop and continuing in Melby v. Anderson.⁴ Since the courts appear to narrowly construe Congress' intent behind the federal wage garnishment statutes, Section I-C critically analyzes and questions the outcome reached in the above cases. Finally, Section I-D offers suggestions to rectify the jurisprudential shortcomings.

After examining the federal statute, Section II of the article turns to the Louisiana statute exempting the garnishment of wages. Since Louisiana state courts have yet to confront this issue, Section II-A examines how other state courts have interpreted their own wage garnishment exemption statutes in light of the federal statute. Section II-B then closely analyzes the Louisiana statute. In order to fully answer the wage garnishment issue in Louisiana, Section II-B examines the language, history, and legislative purpose behind the state statute. Finally, Section II-C concludes by stating that Louisiana courts should broadly interpret the state statute and extend the garnishment exemption to wages deposited in bank accounts. Page 235

I The Federal Statute: Restriction on the Garnishment of Wages

A Federal Statute Background

Wage garnishment has been defined as "the taking of the debtor's wages directly from the employer to satisfy the debt owed to the creditor."⁵ The protection of wages first developed in state statutes to allow debtors to protect portions of their wages from garnishment.⁶ These state statutes differed from one another, and many statutes led to devastating results for a debtor and his family as states allowed for the garnishment of a high percentage of wages.⁷ Congress eventually took note of the garnishment problem and on May 29, 1968, passed the Consumer Credit Protection Act (CCPA),⁸ which became effective on July 1, 1970.⁹

The CCPA is an extensive Act currently encompassing 15 U.S.C. ßß 1601-1693. The Act was originally composed of three Subchapters but has since grown to six Subchapters, all with the purpose of regulating consumer transactions. This article will mainly focus on the sections within Subchapter II, Restrictions on Garnishment, 15 U.S.C. ßß 1671-1677.

Though there exists much legislative history behind the passing of the CCPA,¹⁰ it is quite evident that Congress was concerned with the growing number of bankruptcies and believed these increasing bankruptcies were the result of unrestricted state garnishing laws.¹¹

Congress unified state garnishing requirements by allowing the garnishment of twenty-five percent of disposable earnings or the amount by which a debtor's weekly disposable earnings exceeded thirty times the federal minimum wage rate, whichever amount is Page 236 less.¹² Thus, Congress allowed for an exemption of at least seventy-five percent of a debtor's wages. The statute defines "earnings" as "compensation paid or payable for personal services, whether denominated as wages, salary, commission, bonus, or otherwise and includes periodic payments pursuant to a pension or retirement program."¹³ The statute also defines "disposable earnings" as the "part of the earnings of any individual remaining after the deduction from those earnings of any amounts required by law to be withheld."¹⁴ Finally, the CCPA allows states to set their own standards for wage garnishment, as long as state laws do not undermine the creditor restrictions set out in the federal statute.¹⁵

B The Federal Jurisprudence

1. Dunlop v First National Bank of Arizona

The issue concerning the CCPA was first discussed in Dunlop v. First National Bank of Arizona.¹⁶ In Dunlop, the court was called upon to determine whether the CCPA's provisions restricting wage garnishments applied to funds that were deposited in financial institutions. The First National Bank of Arizona was served with writs of garnishment for certain funds deposited into bank accounts by depositors named in the writs.¹⁷ The Department of Labor responded by claiming that certain portions of the deposit were protected from garnishment under the provisions of 15 U.S.C. ßß 1671-1677.¹⁸ The court first examined the language of these statutes under Subchapter II of the CCPA, "Restrictions on Garnishment," and found that there was no reference or mention of financial institutions in these articles.¹⁹ The district court next compared Subchapter II to Subchapter I and Subchapter III. Subchapter I consists of articles dealing with Consumer Credit Cost Disclosure, and Subchapter III contains articles regulating Credit Reporting Agencies. While financial institutions play a role in Subchapters I and III, the court found that there "is not the slightest hint in the wording of 15 U.S.C. ßß 1671-1677 that the Page 237

[S]ubchapter [II] should be applied to financial institutions."²⁰

The court described Subchapter II as regulatory in nature, where the "statute is concerned with the regulation of the garnishment process itself and not the protection of a given fund."²¹ The court noted that if Congress intended to extend the restriction of wage garnishment to funds deposited in a financial institution, Congress would have specifically done so.²² Finally, the court dismissed the Department of Labor opinions in which the Department suggested that Subchapter II should apply to funds deposited in bank accounts. The court rejected the opinion on the basis that if the court were to uphold the Department's suggestion, it would be reading language and intent into the statutes that were not currently present.²³ The district court, therefore, held that Congress, through the language and structure of the garnishment statute, did not intend to protect wages from garnishment after they were deposited into financial institutions.

2. Melby v Anderson

The ruling in Dunlop was followed and subsequently expanded in other courts and circuits. In Melby v. Anderson,²⁴ the creditor, Melby, attempted to collect on the debt owed by defendant Marilyn Anderson by garnishing funds deposited in Marilyn and LeRoy Anderson's joint checking account.²⁵ The Andersons...