Industry Letter

Re: Amendments Regarding Exempt Funds

Date: January 20, 2009

To: All New York State Banking Institutions

This is to alert all New York State banking institutions of a new state law, the Exempt Income Protection Act (“EIPA”), which is effective January 1, 2009. The new law amends Article 52 of the New York Civil Practice Law and Rules (“CPLR”) and limits the ability of judgment creditors and others to restrain Social Security and other exempt funds.


Both New York and federal law currently exempt certain income from debt collection or attachment. Federal law specifically exempts veterans` benefits, Social Security, Social Security Disability and Supplemental Security Income. New York law also exempts benefits, such as pensions, public assistance, workers compensation and unemployment insurance, as well as child support, and spousal support or maintenance. To ensure that money judgments do not render working New Yorkers unable to care for their or their families` most basic needs, New York also protects a baseline amount of every person’s earnings. It exempts 90 percent of earnings deposited into a bank account within 60 days prior to the date the bank receives the restraining notice. It also protects from garnishment a set amount of wages which is equivalent to thirty hours per week of employment at the federal minimum wage.

As described in the memorandum in support of EIPA, the purpose of these federal and state statutory exemptions is to enable the “elderly, disabled, and poor to maintain the resources needed for food, rent, medicine and other basic necessities.” Yet despite these exemptions, procedural loopholes had existed that permitted judgment creditors and others to freeze bank accounts containing legally exempt income and that subjected banks to contempt of court for failing to comply with "restraining notices" issued pursuant to CPLR 5222 regardless of the source of income. The new law is intended to close these procedural loopholes and to ensure that vulnerable New Yorkers do not lose access to the funds required to meet their basic needs.

Highlights of the Exempt Income Protection Act

Banks Cannot Restrain the First $2,500 in Accounts Receiving Statutorily Exempt Payments Electronically or By Direct Deposit

  • The new law provides an automatic exemption for the first $2,500 in a bank account where any payments “reasonably identifiable” as “statutorily exempt” were made electronically or by direct deposit during the 45-day period prior to service of a restraining notice or income execution. Except pursuant to court order and other limited circumstances, 1 banks may not execute, levy, attach, garnish, restrain or encumber the first $2,500 of funds in any such account. In contrast to past practice, the burden is now on the judgment creditor to demonstrate that the funds are not exempt. Judgment creditors will no longer be able to restrain an account containing exempt funds and maintain the restraint until the account holder is able to prove that the money in the account is exempt.
  • Statutorily exempt payments include
    • Social Security, including Retirement, Survivors and Disability benefits
    • Supplemental Security Income
    • Child Support payments
    • Spousal support or maintenance
    • Veterans Administration benefits
    • Public Assistance
    • Workers’ compensation
    • Unemployment Insurance
    • Public or private pensions
    • Railroad Retirement
    • Black lung benefits
  • Beginning on April 1, 2012, and every three years afterwards, the amount of the automatic statutory exemption will be adjusted in accordance with the Consumer Price Index, and the current dollar amount of the statutory exemption will be published by the Superintendent of Banks.

Banks Cannot Restrain the First $1,716 in any Account Not Receiving Directly Deposited Statutorily Exempt Payments

  • The new law creates a $1,716 cushion for debtors who don't receive government benefits or assistance. In particular, the law prohibits banks from executing, levying, attaching, garnishing, encumbering or restraining an amount equal to or less than 240 times the federal or state minimum wage, which ever is greater, except to the extent a court determines is not necessary for the reasonable requirements of the judgment debtor and his or her dependents. The amount of this exemption is currently $1,716 but is scheduled to rise to $1,740 on July 24, 2009 and in accordance with the minimum wage thereafter.

Procedural Protections for Restraining Other Funds

  • EIPA also adds a new section 5222-a to the CPLR. This section establishes procedures for releasing funds that have been restrained in accounts above the $2,500 and $1,716 amounts discussed above.
  • When a restraining notice or income execution is served on the bank, the judgment creditor’s attorney, sheriff or support collection unit must serve the bank with the following notices and forms. Failure to serve these notices and forms renders the restraining notice void:
    • Two copies of the restraining notice
    • The exemption notice
    • Two exemption claim forms
  • If any funds are restrained, the bank, within two business days after receipt of the restraining notice or execution, exemption notice and exemption claim forms, must serve upon the account holder the exemption notice and two exemption claim forms by first class mail to the account holder’s last known address. The exemption notice explains to the account holder that the account has been restrained, that certain types of funds are exempt and the procedures for releasing an account, including the types of documents that will be helpful in demonstrating the existence of statutorily exempt funds.
  • To release an account, the account holder must complete the exemption claim form, sign it under penalty of perjury and mail or deliver copies to the bank and the judgment creditor’s attorney (or judgment creditor if not represented) within twenty days of the postmark on the correspondence containing the notice and forms.
  • If the account holder does not complete and return the form within 25 days from the date sent, the account remains subject to the restraining notice or execution.
  • If the account holder demonstrates that all the funds are exempt, the judgment creditor must instruct the bank to release the account within seven days of the postmark on the envelope in which the claim form is sent. If the account contains both exempt and non-exempt funds, the judgment creditor must apply the lowest intermediate balance principle of accounting to determine which funds in the account are exempt and direct the bank to release those exempt funds within seven days of the postmark on the envelope in which the claim form is sent.
  • A judgment creditor may object to the claimed exemption if it has a “reasonable belief” that the account contains funds that are not exempt. A motion objecting to the claimed exemption must be made within eight days of the postmark on the envelope containing the executed exemption claim form and must contain the factual basis upon which the objection is based. In any contested matter, the exemption claim form is to be considered by the court as prima facie evidence that the funds in the account are exempt, and the burden of proof is on the creditor to demonstrate that the funds are not exempt. A court shall hold a hearing within seven days of the motion objecting to the exemption, and shall issue an order for appropriate relief within five days of the hearing.
  • Where the judgment creditor makes a timely objection to the claimed exemption, the bank shall retain the funds claimed to be exempt for 21 days unless otherwise ordered by the court. After 21 days, if the bank has not been otherwise ordered by the court, it shall release the funds to the account holder.
  • Banks may not charge the account holder a fee if it is served with a restraining notice and the bank account cannot be lawfully restrained or if the restraint is placed on the account in violation of the law.

If you have questions related to this Industry Letter, please contact Jane Azia, Director of Non-Depository Institutions and Consumer Protection at (212) 709-3503 or [email protected].

1. The other limited exceptions apply to requirements regarding child support and alimony pursuant to 42 U.S.C. § 659 and veterans’ benefits pursuant to 38 U.S.C. § 5301.