Banking Bill Hurts Small Businesses’ Ability to Collect Debts

Issues & Policies

A bill that went before the legislature’s Banking Committee at a March 2 hearing hurts small businesses by hampering their efforts to collect outstanding debts.
HB 7031 not only overturns and reverses a recent, unanimous state Supreme Court decision, it also effectively extinguishes bank executions in this state, CBIA Counsel Louise DiCocco told committee members.
The proposal, she said, has the potential to hurt small businesses attempting to collect on work done for their customers.
“Many of our members are small businesses and depend upon legitimate bank executions to assist them in collecting seriously overdue judgments,” DiCocco said.
In Cadle Co. v. Fletcher, 324 Conn. 228 (2016), the court unanimously held that a judgment debtor’s wages are not exempt from execution if he or she retained possession of them after a wage garnishment.
Thus, Connecticut statutes do not provide a specific exemption for residual, post-garnishment wages that have been disbursed to a judgment debtor.
DiCocco noted the Cadle decision does not repeal the wage-exemption law in the Connecticut General Statutes, which states the first $1,000 of a judgment debtor’s wages, if made by readily identifiable direct deposit within 60 days prior to the bank execution, are automatically exempt.

Earnings Definition

The Cadle decision concluded that, as a statutory matter, wages a judgment debtor has deposited into a bank account are not a debt payable by the employer, and do not fall within the definition of earnings.
Therefore, the exemption does not apply to those funds.
Many types of funds in a judgment debtor’s bank account are already exempt from execution, including the first $1,000 in a judgment debtor’s account, veterans’ benefits, child support payments, Social Security benefits, Supplemental Security Income benefits, pension benefits, and unemployment compensation benefits.

Small businesses depend on legitimate bank executions to collect seriously overdue judgments.

In addition, a creditor must fulfill numerous prerequisites before obtaining a judgment. And after a judgment is obtained, the Court sets an installment-payment schedule.
As long as the debtor complies with the installment payment schedule—keeping in mind he or she can always come into court to lower the amount—no execution may be done.
In addition, bank executions and wage garnishments are remedies of last resort that are utilized only after a judgment debtor has ignored a court order to make minimal weekly payments toward the judgment debt.

Creditor's Rights Extinguished

It’s worth noting that in collection of debts, Connecticut only allows one active execution per action to be in place at a time.
If a creditor is collecting pursuant to a wage execution, courts will not issue a bank execution.
If the judgment debtor defaulted on the installment payment ordered by the court, and there is no other type of execution, only then can a creditor apply for a bank execution.
If this bill is passed, it would effectively extinguish a creditor's right to execute on funds in a judgment debtor's bank.
It would also enable judgment debtors to shield their wages in a bank account to avoid paying a court-ordered judgment in which the judgment debtor has had many opportunities to pay, and is willfully defying a court ordered payment schedule.
CBIA opposes this bill and asks lawmakers to do so as well.

For more information, contact CBIA’s Louise DiCocco (203.589.6515) | @LouiseDiCocco


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