EXEMPTIONS - What they are and why you need to care about them
OK – so you have been sued by a creditor. Maybe even a judgment has been entered. Many people think that is the end of the matter. The lawsuit, while anxiety-inducing, was nothing. Entry of the judgment itself, with some exceptions, is no big deal. Rather, it is the effect of the judgment and what it allows the creditor to do that is important. Lawsuits thus should never be ignored.
In all states, judgments can last for a period of years unless renewed. That does not mean that they go away. They don’t. They just earn interest at whatever the statutory rate is and get bigger. The renewal period concerns the enforceability of the judgment. For example, judgments in North Carolina last 10 years and can be renewed for another 10 years. That means they are potentially enforceable for 20 years. In Georgia, the renewal period is 7 years, and in Pennsylvania, its 5 years for real property and 20 years for personal property. So judgments last forever and can be enforceable for a long time.
Judgments can be enforced 30 days after their entry. Sometimes a creditor or court will send notice of the entry of judgment. More often they don’t, so the debtor must be aware of when a judgment is likely to be entered.
To collect on a judgment, creditors have a variety of tool at their disposal – the most common is to “freeze” (levy on) bank accounts and garnish wages. Only a handful of states do not permit wage garnishment, North Carolina and Pennsylvania being among them. Other remedies are the seizure and sale of assets that are owned free and clear. However, bank accounts and wage garnishment are preferred because creditors do not want your pots and pans and old furniture as these are not worth much and will not bring in very much if sold. And even if assets are seized, there are going to be storage and/or costs of sale, which have to be taken into account.
However, all states have certain exemptions from levy and seizure of assets by judgment creditors. A debtor’s assertion of exemptions is in effect telling the creditor “you can’t touch this.” So that is why they are extremely important as it allows you to shield exempt assets.
The exemptions are different in the states and the procedure for asserting the exemptions is different too. Since I am admitted in Georgia, North Carolina and Pennsylvania, I am going to focus on each of these states. If you have a judgment against you in another state, then you should consult an attorney in your state. However, I am part of a network of attorneys throughout the US and if you are in another state, I may be able to refer you to an attorney in your state with whom you could consult about the effects of a judgment in your state and your state’s exemptions. So please feel free to ask me if I can be of help.
Bottom line – if you are sued, don’t despair. It is wise to consult an attorney as soon as you are sued so you can assess the risks, weigh your options and decide upon a strategy. Know that debts almost always can be resolved, either before a lawsuit is filed, after a lawsuit is filed or even after the entry of judgment. If wage garnishment or levy of assets is a concern, payment arrangements can be worked out. Depending on the assets and debts, bankruptcy can be the option of last resort if all other efforts fail. However, it is important to get an attorney involved in the process as early as possible so that assets can be protected in the event judgment is entered. And that is where exemptions come in.
Exemptions in Georgia
In Georgia, there are two sets of exemptions, constitutional and statutory. The exemption laws were enacted just after the Civil War and have not kept pace with modern times. Georgia allows you to exempt up to $5,000 worth of your property under the constitutional exemption. O.C.G.A. § 44-13-1. In addition to the $5,000, the debtor can also exempt up to $300 worth of kitchen and household furniture. § 44-13-41. In order to assert the constitutional exemption, the debtor must file a petition with the probate judge in the county where the debtor resides. O.C.G.A. § 44-13-4 and § 44-13-42. If the debtor refuses to apply for this exemption, the spouse and/or children/dependents can do it. O.C.G.A. § 44-13-2.
In most cases, a debtor will be infinitely better off by choosing the statutory exemptions which are more generous. For a complete listing, see O.C.G.A. § 44-13-100. The bad news is that the statutory exemptions can only be used for bankruptcy purposes and for estates where the deceased dies without a will (called intestate) and is insolvent (meaning that the debts of the debtor outweigh any assets). Again, to claim the exemption the debtor must file a petition with the probate judge in the county where the debtor resides, and the exemption can be claimed by the spouse of the debtor. O.C.G.A. § 44-13-101.
So, if you are not filing bankruptcy, does that mean you are out of luck? Not necessarily. If an item is owned jointly or subject to a mortgage or other lien, i.e., if a car is still being financed or a home has little equity and is mortgaged or subject to a deed of trust, it cannot be seized and sold. While wages can be garnished up to 25% of a debtor’s disposable pay, things like Social Security, Veteran’s benefits, unemployment compensation, disability and retirement cannot be garnished at all. Debtors can also minimize levy on bank accounts by getting an online or out-of state bank account or pre-paid debit card, going on a cash-only basis or by other lawful means.
UPDATE! Earlier in the year the Georgia Legislature increased the amount of the constitutional and statutory exemptions to include real or personal property used as the debtor’s primary residence. Under the constitutional exemptions, a debtor can exempt up to $21,500 in real or personal property used as a primary residence. For the statutory exemptions, this amount is the same, but the statute further provides that where title to the property is “in one of two spouses who is a debtor, the amount of the exemption hereunder shall be $43,000[.]” O.C.G.A. § 44-13-101 (as amended).
There are specifics as to what must be included in the application. O.C.G.A. § 44-13-2. Notice has to be given to creditors and the application published as per the statute. O.C.G.A. § 44-13-7 and 8. The creditors can object; if they do, then appraisers are appointed and will examine and assess the value of the property. Regardless of whether there are objections, a hearing is scheduled and the judge has to approve the exemptions and transmit the approval to the clerk for recording. O.C.G.A. § 44-13-11.
Exemptions in North Carolina
To collect on a judgment in North Carolina, a creditor is required to have the sheriff serve the debtor with two pieces of paper – one is a “Notice of Rights to Have Exemptions Designated” and the other is a “Motion to Claim Exempt Property.” These are very very important. If you receive this do not ignore it because if you do not claim your statutory exemptions by timely filing the motion with the court, then they are considered waived and even if your property would have been exempt otherwise, the statutory exemptions do not apply.
North Carolina’s exemptions also were crafted during the Civil War and North Carolina offers limited constitutional exemptions. Under the constitutional exemptions, a debtor can exempt $500 worth of personal property and a homestead exemption of $1,000. While this may have been considered a generous sum when the statutes were enacted, it is almost laughable today. The only reason why a debtor would choose the constitutional exemption is that the exemption can never be waived and can be asserted at any time prior to the seizure of property. So if you have failed to file your statutory exemptions, you at least can exempt the amount granted by the constitutional exemptions when the sheriff comes to seize your stuff. For a link to the North Carolina Constitution, go here: http://www.ncleg.net/Legislation/constitution/article10.html. The exemptions are found in Article 10 of the North Carolina Constitution and N.C.G.S. § 1C 1602.
The statutory exemptions are not limited to bankruptcy and are again more generous. For a complete listing, see N.C.G.S. § 1C 1601. Other exemptions not included in this list are a debtor’s earnings for the past 60 days. Retirement benefits, like IRAs and other ERISA qualified benefits may be exempt. However, non-ERISA qualified benefits like some 403(b) plans, while exempt in bankruptcy are not necessarily exempt by state law. Social Security, Veteran’s Benefits or any other federal benefit is also exempt.
When you receive the motion to claim exempt property, you have 20 days to fill it out and return it to the court. Just sending it to the lawyer for the creditor is not enough. It actually has to be filed with the court by the due date. You can then mail a copy of the filed exemptions to the creditor. While I recommend that debtors actually go to the courthouse and file this, if you mail it, make sure that the exemptions will be received by the court and docketed on or before the 20th day or else they will be deemed untimely.
If you are completely running out of time, don’t panic. North Carolina provides an alternate procedure for designating exemptions. A debtor can file a written request with the Clerk of Court requesting a hearing. The written request must be filed with the clerk on or before the 20th day. Upon receipt of the request, the clerk will arrange for a hearing and notify the debtor and creditor of the hearing date. The debtor must attend the hearing and can assert the statutory exemptions at that time.
Once the exemptions are filed with the court and sent to the creditor or the creditor’s attorney, the creditor has 10 days to object and file objections. If objections are filed, the clerk will schedule a hearing. If the debtor hears nothing, then objections were not filed. The clerk then designates whatever property is claimed by the debtor as exempt and a writ of execution issued. The exemptions will then be sent to the sheriff along with the writ. The sheriff will do a very limited asset search confined to the real estate and tax records. If the sheriff finds no assets that can be seized, the sheriff is going to contact the debtor to try and get the debtor to pay voluntarily. If the debtor has no funds, the debtor needs to convey that to the sheriff. The debtor is not obligated to pay or to even let the sheriff in the debtor’s home (unless the sheriff is evicting a homeowner after foreclosure or evicting a tenant from a rental the sheriff cannot enter a debtor’s home to collect on a judgment).
Writs of execution are good for 90 days. They expire after that but can be re-issued any number of times. If a creditor is going to do this, a creditor to wait a year or two before again attempting to collect as a debtor’s circumstances may have changed.
Some counties in North Carolina may follow the procedure whereby once the exemptions are designated they do not have to be re-filed in order for the creditor to collect. However, if a creditor wants to try to execute after the expiration of the initial execution, then the clerk may require the debtor to again be served with a notice of rights and motion to claim exempt property. The process is then repeated.
Exemptions in Pennsylvania
While Pennsylvania does not have wage garnishment, see 42 Pa.C.S.A. § 8127, Pennsylvania is the least generous of all the states when it comes to exemptions. There is no homestead exemption in Pennsylvania like there is in other states. Nor is there an exemption for a motor vehicle. To claim these exemptions, a debtor would have to file bankruptcy and select the federal bankruptcy exemptions.
Pennsylvania’s exemptions are found in two statutes, 42 Pa.C.S.A. § 8123 and § 8124. Under Section 8123, a debtor can exempt up to $300 in cash or in other property worth up to $300. In addition to the $300, a debtor can exempt clothes, uniforms, a Bible, sewing machine, retirement funds, unemployment, disability and other certain types of insurance proceeds under section 8124.
Again, you are not necessarily out of luck if you are not filing bankruptcy. Certain jointly owned or liened assets would be exempt. Social Security and other types of income may be exempt from seizure/garnishment.
Copyright (c) 2012 by Rachel Lea Hunter
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