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08
Oct
2020

Garnishment & Wage Assignment

An Illinois Court held wage assignment, unlike a garnishment on debtor’s wages, unconditionally vested creditor’s rights.

In this case, the debtor sought a return of $546.93 that had been withheld from his wages pursuant to a voluntary wage assignment and paid to Mercury Finance Co. (“creditor”) prior to his filing a Chapter 13 bankruptcy.

Here, debtor’s wages were subject to a voluntary wage assignment on a loan with creditor. The loan was in default and creditor exercised its rights to enforce the wage assignment under Illinois law.

Debtor’s employer honored the assignment and forwarded a portion of debtor’s wages to creditor; shortly thereafter, debtor filed bank ruptcy and creditor sent the withheld wages to the Chapter 13 Trustee.

The issue in this Illinois case was whether the withheld wages became an asset of the bankrupt estate or whether the debtor was entitled to a return of those funds.

The court held that:

… a wage assignment, unlike a garnishment on debtor’s wages, unconditionally vests in the creditor when the three step process in the Illinois Statute is followed. The court found that creditor had followed proper procedure and debtor had not objected.

By contrast, however, a garnishment is a judicial proceeding.

In a garnishment proceeding, most courts have held that the creditor’s right to payment becomes unconditional when the wage deduction order is entered [with the court].

In summary, the wage assignment extinguished debtor’s interest in the money and it was not property of the estate. Hence, $546.93 was returned to creditor.  Gregory Simon v. Mercury Finance Co., 153 B.R. 217.

Article Author: Charles R. Harroun, Attorney at Law



This entry was posted on Thursday, October 8th, 2020 at 9:09 am and is filed under Bankruptcy, Employees, National. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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