On October 7, California Governor Gavin Newsome signed SB 616 into law. This new law, which goes into effect on September 1, 2020, includes changes to California law regarding garnishments. SB 616 amends California Code of Civil Procedure (CCCP) § 699.520, revising requirements for a writ of execution. The content of a notice of levy is also changed, as SB 616 amends CCCP § 699.540. SB 616 amends, repeals, and adds CCCP §§ 703.520 and 703.550, adjusting the procedures for claiming exemptions after levy. Also, SB 616 expands property exemptions by amending CCCP § 704.070 and adding CCCP §§ 704.220, 704.225, and 704.230. These changes ultimately limit how much judgment creditors can garnish from an individual’s bank account when attempting to collect on judgments.
Specifically, California currently provides a judgment debtor with 10 days after the notice of levy is served to claim their exemptions and gives a creditor 10 days to oppose the claims. Additionally, the State already specifies the maximum amount of a judgment debtor’s disposable earnings that are subject to a garnishment, exempting 75% of paid earnings of an employee if, prior to payment to the employee, the earnings were not subject to a withholding order or assignment order for support. In other words, a creditor can garnish up to an amount that is the lesser of either 25% of a debtor’s weekly earnings or 50% of the amount by which the debtor’s earnings exceed 40 times the minimum hourly wage, and there is no minimum balance that a debtor’s deposit account must remain after being garnished. Under SB 616, beginning September 1, 2020, debtors will have 15 days to file a notice of claim of exemption if the debtor was personally served with the notice of levy and 20 days if the debtor was served with the notice of levy by mail. Creditors now have 15 days to oppose the exemptions claimed by debtors.
Further, SB 616 automatically designates any funds in a debtor’s deposit account that are “equal to or less than the minimum basic standard of adequate care for a family of four” in California as exempt from garnishment, without the need for a debtor to file a claim of exemption (and a debtor is still entitled to all other exemptions provided for by state or federal law). CCCP § 704.220(a). However, this exemption does not apply to money garnished to satisfy certain obligations such as wages owed, child support, or spousal support. It also does not apply to the collection of a liability by the State, or any of its departments or agencies. Currently, the Department of Social Services considers the amount needed to establish the basic standard of care to be $1,724.00. The exempted amount will be updated yearly, meaning it may be higher by the effective date of September 1, 2020. Additionally, any monies received from FEMA are automatically exempt without the need for a debtor to file a claim.
If a debtor has more than one account with the same bank, either the creditor or the debtor may move the court to determine how and to which account the exemption shall be applied. If a debtor has multiple accounts across multiple financial institutions, the creditor must request a hearing before a judge to determine how the exemption should be applied.
SB 616 will limit the extent to which judgment creditors can obtain funds that would have otherwise been collectible under current California law. SB 616 does not, however, limit the ability of a debt collector to execute a judgment against the non-exempt personal assets of a judgment debtor.
These upcoming limitations may reduce the amounts judgment creditors are able to collect through a garnishment in California. The Judicial Council will be amending or adopting the necessary forms to implement this new section 704.220 of the CCCP, as the law requires a levy against a judgment debtor’s deposit account to include a description of the right to, and the limitations of, this new automatic exemption. It will be important to follow the development of these forms to ensure that the appropriate version is used as of the effective date in less than a year. In addition to decreasing the effectiveness in California of a garnishment to recover funds to collect on a judgment, this law may also lead to increased litigation costs because of more court appearances due to the interplay between this new exemption and already existing ones, as well as situations involving more than one account at a single bank. They will also force financial institutions in California to be increasingly vigilant in ensuring they are complying with California law regarding minimum thresholds that should remain in accounts. It is the financial institution that must make the determination of what non-exempt funds are available to turn over to the judgment creditor, which can be a complex endeavor when dealing with multiple accounts.