Why Do Tennessee Court Clerks Hold Garnished Funds for Twenty Days?

You’ve got your judgment. You’ve waited for the appeal period to expire. You’ve issued your garnishment. And, finally, the Clerk has some money for you. But, they say they have to hold it for 20 days. 20 more days!?!

Why? Where does this 20 day period come from? It’s on the garnishment forms, I know, but what’s the basis for holding the funds under the Rules of Procedure or under Tennessee statutes?

The answer is Tenn. Code Ann. § 26-2-407, which allows a judgment debtor to file a motion to quash a garnishment, in order to assert certain exemption rights, within twenty (20) days from the levy.

Wait a second, you might be thinking. What about Tenn. Code Ann. § 26-2-114, which says that “a claim for exemption filed after the judgment has become final will have no effect as to an execution which is issued prior to the date the claim for exemption is filed, and as to such preexisting execution the claim for exemption shall be deemed waived.”

In layman’s terms: If you don’t claim the exemption before the garnishment is issued, then it’s waived. Why on earth, then, a procedure exist to assert a claim that was waived?

Here’s how this works: Tennessee statutes allow some assets to be absolutely exempt. These assets include: social security benefits; certain government pensions; certain health care aids; unemployment and veterans benefits; and certain insurance benefits. (See Tenn. Code Ann. § 26-2-404 for a list.)

These assets are “untouchable,” and, as a result, the motion to quash procedure exists to make sure that the garnishment doesn’t catch those specific items.

As a practical matter, a judgment debtor use this time period to file a Slow Pay Motion or file a Bankruptcy, but, under Tennessee law, they’ve actually got a very limited basis to attack your garnishment during the 20 days. If it’s not one of those listed exemptions, you’ll probably get your money…in twenty days.

2012 Tennessee Legislature is Considering an Absolute Homestead that Would Eliminate a Creditor’s Ability to Collect Against Residential Real Property

Recording a judgment in the county’s Register of Deed’s Office creates a lien on any real property owned in that county by the Debtor pursuant to Tenn. Code Ann. § 25-5-101.

A judgment lien is the single most effective tool in the collection process. Plus, it’s cheap: for less than $20, a creditor can get a lien on any property owned (or owned in the future) by the Debtor, and that property cannot be sold, refinanced, or transferred without dealing with the creditor.

As a creditor rights lawyer, you can guess my concern over two Bills being considered by the Tennessee Legislature in 2012, House Bill 2887 by Glen Casada and HB 2930 by Mike Bell.

These Bills seek increase the “homestead” exemption in Tennessee. “Exemptions” allow a debtor to protect certain property from the reach of creditors. Exemptions are designed so that a judgment creditor can’t take everything, so household goods, retirement accounts, and other necessities can be exempted.

H.B. 2887 proposes an absolute exemption that would exempt a debtor’s residence from any execution or judicial sale. Essentially, no matter how much equity a debtor has in his or her house, that equity would be completely untouchable by creditors.  A debtor could live in a $1,000,000 lien-free house without paying a penny to creditors. This legislation would completely abolish the concept of a judgment lien.

Currently, Tenn. Code Ann. § 26-2-301 allows a single individual to exempt $5,000 of equity, a married couple $7,500, and a married couple with minor children living in the house up to $50,000.

The other proposed legislation, HB 2930 by Mike Bell, seeks to simply increase the homestead exemption amount to $50,000 across the board.

From a creditor’s perspective, the proposed legislation is both too broad and unfair.  I understand the importance of protecting peoples’ homes, but, at the same time, the law should operate fairly as to creditors and debtors.

Frankly, I think it’s unfair that the law would shield $50,000 of equity from the reach of creditors.  Think about it from a creditor’s perspective: if you loaned somebody $200,000 and weren’t getting paid any of it, wouldn’t you be mad to see them keep $50,000 of equity?