One of the tools that can be used to recover a judgment, is to levy (take) an asset of the debtor. Examples are vehicles, bank accounts, or wages.

Sometimes these levy tools seem to succeed at first - until you receive notice that the judgment debtor has filed a claim of exemption. Claims of exemption (and third-party claims) can be filed with the sheriff at any time up to the moment the funds are released to the creditor.

Exemptions are actions and protections mandated by laws that protect certain types of income and assets. One exemption-like effect happens when you try to levy wages, if there is already a preexisting levy ahead of yours. (Your levy will not attach because of the previous levy.) Laws protect certain dollar amounts in bank accounts, and also some personal property of the debtor's choice, vehicles, and the tools of their trade, etc.

Some incomes and assets are protected from most creditors. However, certain types of debts can reach and take otherwise exempt assets, for example, delinquent child support, alimony, and federal tax debts.

Some examples of exemptions include unemployment benefits, most types of pensions, retirement plan assets or payments, child support payments, Supplemental Security Income (SSI), veterans benefits, temporary assistance for needy families, certain types of community property assets, disability income, and fixed dollar amounts as mandated by state and federal laws.

State laws may also add extra limitations on bank account garnishments. For example, in New York, the first $2,500 in a debtor's account is off limits, if that account ever received protected (Social Security disability checks, for example) electronic deposits in the 45 days prior to the bank's receipt of the levy. In New York, even with unprotected funds, the first $1,716 is levy-proof. Other states have, or are planning, similar first-dollar bank levy exemptions.

After the judgment debtor claims an exemption with the sheriff, if the creditor wants a chance of getting the money "owed" them, they must initiate and attend a court hearing where they and the debtor, get to explain their sides of the story to a judge or commissioner.

When a judgment debtor files a claim of exemption, the creditor must schedule the court hearing to occur within days, or a few weeks at most. If the creditor does not appear at the court hearing, they lose and the debtor's claim is automatically granted. If the debtor does not show up, you win.


If the judgment debtor claims an exemption with the sheriff, the creditor will get a notice in the mail. To challenge this, the creditor must mail back to the judgment debtor (certified mail, return receipt requested) a declaration objecting to the debtor's claim of exemption and a "notice of hearing" regarding objection to the exemption claim. The creditor must also send notice of the hearing to the court.

The court hearing usually must be held (varies by state) within two weeks of the creditor receiving the exemption claim. The creditor must act quickly to act quickly to attempt to win.

If you know that your debtor is poor, or you know their exemption is valid, you might as well drop the matter and hope the debtor's luck improves. However, you cannot simply drop it, you must follow up, to make sure the matter gets resolved.
 
If you do not object to the exemption claim, or do not object within (E.G.) seven days after receiving the judgment debtor's claim of exemption, then within (E.G.) ten days following your receipt of the exemption claim, you must take action. You must obtain a court order, and deliver it to the garnishee (usually a bank or employer) telling them to release the exempt assets to the judgment debtor.

If you do not comply with the exemption rules, the judgment debtor is entitled to receive from you a penalty of (E.G.) $50 plus any actual damages they sustain because their exempt property was not released.

If you decide to show up in court and contest the exemption claim, be prepared at the hearing to quickly and clearly explain to the judge why the court should not allow the judgment debtor's exemption(s).

If you show up in court, the burden is usually on the judgment debtor simply to prove their exemptions are valid. It's not enough for a debtor to claim an exemption. The debtor usually must bring written proof to the court.

If the debtor claims the money in their bank account came from disability funds, they must bring a copy of their bank records showing the deposit patterns to the account coming from disability income. The deposits should all be the same approximate amount, and there should be some documentation showing it is disability income.
 
Simply claiming a general hardship is usually not enough to win an exemption hearing. Most judges will want to see proof an exemption applies. If the debtor is telling the truth, they will likely have their proof handy.

If you have determined that the judgment debtor is telling the truth,  you can contact the bank or employer in writing, and let them know to release the levy.
 
As of May 1, 2011, electronically deposited exempted funds, such as Social Security, will now be "tagged" by the federal government, making it easier for financial institutions to separate exempt and nonexempt funds to be garnished.  Nonexempt funds that are not direct deposited will not be electronically tagged. 

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