Garnishment of Secured Debt

Suppose a hypothetical client asked a question regarding a judgment creditor’s writ of garnishment of accounts receivable. The client was a medical provider with substantial receivables owed by medical insurance companies. The client has previously arranged a line of credit from a national bank. The bank secured repayment with a recorded lien on the client’s accounts receivable and other assets. A judgment creditor served a writ of garnishment on one of the insurance companies that owed the client money for medical treatment provided to the insurance companies’ customers. The client wants to know if the prior recorded lien on the receivables protects the insurance receivables from the judgment creditor’s writ of garnishment.

A prior judgment against a debtor does not prevent a subsequent creditor from garnishing an unsecured debt owed to the debtor. An earlier creditor’s security interest in the debt also does not preclude a subsequent creditor from trying to garnish the debt. The secured creditor’s lien on the debt will not be enforced automatically, and the secured creditor will have to intervene in the garnishment proceeding to assert its lien and protect its prior interest.

In this hypothetical client’s situation, the client could be advised to notify the bank with the line of credit of the writ of garnishment initiated by the judgment creditor. The bank then could assert its interest either by contacting the creditor’s attorney or, if necessary, intervening in the garnishment court proceedings. The bank should be able to protect its interest in the receivables so that any insurance payments that could be garnished would be payable to the bank instead of the judgment creditor, and the money received would pay down the outstanding line of credit balance.

About the Author

Jon Alper is an expert in asset protection planning for individuals and small businesses.