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Collection Agency Tries to Take 71 year old Woman's Bank Accounts to Pay her Son's Debt

A nice lady in Rosemount, Minnesota, let's call her "Mrs. Jones" to protect her privacy, called me one day and sounded so upset I was afraid she might have a heart attack right then and there.  "Angie," a girl who worked at her bank, had just told her that she no longer had access to the money in her checking and savings accounts. 

    This happened because Mrs. Jones had added her son Jerry as an owner on her checking and savings accounts.  Sometime after that, her son Jerry had some trouble paying his credit card bill that resulted in a court judgment against Jerry.  The collection agency found out that Jerry's name was on Mrs. Jones' accounts, and served a garnishment levy on the bank.  This meant that the bank was legally required set aside the funds in the accounts, up to the amount Jerry owed, for the collection agency. 
    Well, Mrs. Jones needed the money in these accounts to live on.  Her social security and her pension were automatically deposited in the checking account.  This is what she used to pay for groceries and rent and all of her other bills.  Minnesota law does say that certain types of funds are exempt from garnishment.  Social security payments and pension payments are two of the types of exempt funds. 
There is another Minnesota law that says that the money in a joint account doesn't belong to an owner who didn't contribute any money to it.

    But these exemptions are not automatic.  First, the debtor, in this case Mrs. Jones' son Jerry, has to fill out and sign a form he receives from the bank asking him to identify whether the funds in the accounts are partially or entirely exempt.  Then he must send the form to the bank and to the collection agency.  The bank still won't release the funds to Mrs. Jones until either (a) seven days go by and the collection agency doesn't receive an objection to the exemption from the collection agency; or (b) the collection agency sends the bank a written release.  And the collection agency won't send a release until somebody proves to their satisfaction that the funds in the accounts really are exempt.  If the collection agency does send an objection to the bank, then Mrs. Jones has to go to court to prove that the money in her accounts is exempt. 

    And all of these things must be done within certain deadlines.  The bank has to receive the exemption from Jerry within 14 days of when the Bank mailed or delivered the Exemption Notice to him.  In Mrs. Jones' case, it took four days from the date the bank mailed the Exemption Notice to the date it was received.  If Jerry mails the Exemption back to the bank and that also takes four days, that leaves him six days after receiving the Exemption Notice until the time he must mail it back. 

    Many people don't understand what they should do with the Exemption Notice after they receive it.  If Jerry receives it in Friday's mail, reads it after he gets home from work, and has to wait until Monday to call someone to ask what to do, subtract three days from the six days he has to fill out the form and mail it.  Add to this the fact that some people who end up with judgments against them for not having paid their debts might not be very good at opening up and responding to their mail, and you can see that even if the funds in Mrs. Jones' accounts are totally exempt from garnishment, there is still a very real danger that she will lose them anyway.

    If the collection agency does object to the claim that the funds are exempt, there is an even shorter period of time during which the bank must receive a copy of your court motion asking a judge to decide whether the funds in the account are exempt.

    In the meantime, what does Mrs. Jones do about paying her rent and buying groceries?  Never, never, never add your children as owners on your bank accounts.

    But many people, especially widows who are trying to plan for the possibility that they may have to go to the hospital for a time or may for other reasons be unable to take care of their finances, do this very thing.  Maybe a friend or relative told them it was a good idea, and it seemed like a pretty simple and easy way to address the issue.  All they had to do was go into the bank and sign some forms.  This seems a lot easier, and certainly cheaper, than going to see a lawyer for help in accomplishing this planning in a better way.

    One very simple way to allow someone else to handle your finances WITHOUT adding him or her as an owner on your account is to name them in a Power of Attorney.  Once the Power of Attorney is correctly prepared and executed, if it is brought to the bank, the bank will keep a copy in its records and after that the person can sign checks on your account.  Another way to accomplish this is through the use of a revocable trust (also known as a "living trust").  Either method is much, much safer than adding someone as an owner on your bank account.

UPDATE:  Carol S. Cooper successfully challenges creditor's garnishment of funds in joint account not contributed by the debtor.

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