Don't Bet the Business

Garnishments are odd legal creatures. They impose obligations on private businesses and individuals to facilitate the collection of debts owed to other private businesses and individuals. 

It is routine for a business to receive a garnishment for the wages of an employee owed to an ex-spouse or payments owed to a consumer creditor. Likewise, when your business has to sue a defaulting customer, you may issue garnishments to its suppliers and banks in order to collect what is owed to you once the judgment issues. Banks regularly use garnishments to collect on delinquent debts.

While garnishments are never good news, most businesses must deal with them at some point. The consequences for not following the proper procedures in responding to a garnishment can be significant and harsh, including becoming liable for the debt yourself. Addressing garnishments is complicated by the fact that the practices and procedures vary from state to state.

On April 14, 2015 Michigan Gov. Rick Snyder signed into law Public Act No. 14 (the “Act”) which, effective Sept. 30, 2015, overhauls M.C.L. 600.4012 and the procedures for garnishments in Michigan. 

First, the Act will reduce a creditor’s costs and administrative expense of continually monitoring renewal dates and re-filing garnishments. The Act reduces judgment creditors’ time and expense of periodic garnishments by extending the life of the garnishment until the judgment is satisfied. Currently, a periodic garnishment is only good for 182 days at which time it has to be renewed. However, going forward, creditors will be required to provide periodic statements to a garnishee and a garnishment release after payment in full.

Second, the Act adds several hoops that creditors have to jump through before obtaining a default judgment against non-responsive garnishee. The Act overhauled the procedures for obtaining a default judgment against a garnishee that fails to respond after being served with a garnishment.  

Under the old (existing) law, a default judgment could quickly be entered against a garnishee for the full amount of the outstanding judgment, making the garnishee liable for the entirety of the debt for one lone failure of response. Going forward, there are multiple steps that must be taken by the creditor before this can occur.

Garnishees will get more notice of the garnishment and have more opportunities to correct any oversights or errors in the process, reducing the risk of getting tagged with liability for the outstanding judgment for non-compliance.   

Finally, the Act increases the garnishment fee from $6 to $35 which most businesses believe is more aligned with the administrative expense associated with responding to garnishments. 

Collectively, the changes instituted by the Act should make the garnishment process more predictable. The changes are expected to reduce creditors’ costs when dealing with lengthy recoveries and reduce garnishees’ costs and risks by making default judgments more difficult to obtain.