Pub. 12 2022-2023 Issue 4

Commonly Asked Questions About Writs of Garnishment of Bank Accounts

First, let’s review some of the basics. Garnishment is a remedy for judgment holders (creditors) under Colorado law. While there are five different types of garnishments available to a judgment creditor in Colorado, including continuing wage garnishment, this article will focus on a judgment holder (the judgment creditor) obtaining a Writ of Garnishment in Aid of Attachment.

This type of writ would seek to attach a judgment debtor’s account or accounts held at a bank to satisfy the judgment creditor’s judgment. The applicable rule in Colorado is noted as Colorado Rule of Civil Procedure 103. It outlines the process for a judgment creditor to obtain and serve a Writ of Garnishment on a judgment debtor’s non-exempt personal property (which includes most deposit accounts). The process must be followed precisely by all parties and normally require legal oversight of the garnishee bank’s process. The Writ of Garnishment’s full name under the Colorado Rules is a Writ of Garnishment with Notice of Exemption and Pending Levy (if the judgment debtor is an individual), or simply, a Writ with Notice. At the same time that the Writ with Notice is served on the garnishee bank, the judgment creditor also serves the judgment debtor with a copy of the Writ and a blank copy of a Claim of Exemption form.

The bank should have printed response forms that show the time period to answer and the account type exemptions available to the judgment debtor. The bank is not required to defend any claim that a third party may assert in the judgment of the debtor/customer’s property, but the bank must note this in its answer if it has knowledge of a third-party claim. The bank may also claim a right of setoff if it has contractual claims against the customer. An example of this may be that the judgment violates a loan covenant. A setoff right may exhaust the Writ with Notice which would show in the form answer provided by the garnishee bank. If a balance remains after the setoff, that balance remains available to the judgment creditor.

The exemption process is entirely the judgment debtor/customer’s responsibility. The bank is not obligated to assert exemptions on its customer’s behalf.

Some FAQs From Bank Clients

  1. When does the exemption process start?
    • Exemptions may be claimed when the judgment debtor/customer is served with the Writ with Notice.
    • The judgment debtor/customer has 14 days from service of the Writ with Notice to claim any exemptions.
  2. When is the bank required to take initial action on the Writ with Notice, and what is the scope of the bank’s due diligence?
    • The garnishee bank is not required to take any action regarding the availability of any exemptions unless the judgment debtor/customer files a Notice of Exemption with the clerk of court and the garnishee bank receives it. The bank just needs to answer the Writ with Notice in the 10-day prescribed time period and show the funds that the bank has on deposit that would be responsive to the Writ with Notice, including whether a setoff right is available to the garnishee bank (in which case the bank would report no funds). The bank must also determine the identity or mutuality of interest between the judgment debtor and the bank’s customer. For example, a judgment against a corporation owned by an individual account holder/customer does not implicate the individual account holder, and the bank would indicate this in its answer. In a gray area, such as where the account holder is a revocable trust settled by the account holder and in which the account holder has a beneficial interest, the bank should consult counsel for guidance.
  3. Does the bank have to determine that the judgment debtor/customer filed an exemption prior to processing the garnishment?
    • No. If the judgment debtor/customer does not timely file a Notice of Exemption, it is the judgment creditor’s responsibility to notify the court and request an order to disburse funds. The garnishee bank does not need to undertake any independent verification steps.
    • The garnishee bank does not need to notify the judgment creditor that it has received a Notice of Exemption from the judgment debtor/customer. The Colorado Rule requires that the bank freeze the account or accounts in question up to the amount of the garnishment so that the funds may not be withdrawn to thwart the Writ. The bank would not need to disburse proceeds until receipt of a dispositive court order (described below). Colorado law insulates the bank from liability for the freeze if the court subsequently validates a claimed exemption.
  4. What is the timetable for the judgment creditor to object to a judgment debtor’s Notice of Exemption?
    • The Colorado Rule requires that the court hold a hearing no later than 14 days after receipt of the judgment debtor’s Notice of Exemption to resolve the matter. At this time, all parties would be heard, including any objections from the judgment creditor.
  5. What are the mechanics for paying out by the garnishee bank?
    • If the judgment debtor/customer does not file a Notice of Exemption within 14 days after service of the Writ with Notice, the judgment creditor must file a motion with the court to release funds. The court would then enter an order requiring the release of funds which the garnishee bank would pay into the court registry for disbursement by the clerk of the court. If a Notice of Exemption is filed by the judgment debtor, a hearing must be held no more than 14 days after receipt of the Notice of Exemption or objection. As a practical matter, the time frame may be lengthened if counsel seeks and is granted a postponement. The garnishee bank is not required to track the progress of the proceeding and would only act upon receipt of the dispositive court order.
  6. Does the garnishee bank need to make a substantive determination regarding the validity of a claimed exemption?
    • No. The bank just needs to act upon the dispositive court order.

Key takeaway – garnishee bank is a neutral stakeholder in the creditor/debtor dispute and must act strictly in accordance with the Colorado Rule.

Anna M. Adams
Associate | Denver
Tel. 303.634.2061

Anna Adams focuses her practice on appellate law and complex commercial litigation. She is a member of the firm’s Appeals and Critical Motions Group and has assisted clients in state and federal appeals and writ proceedings. In her litigation practice, Anna focuses on commercial and contractual disputes. She has also assisted clients at both the appellate and trial level on First Amendment issues, including anti-SLAPP. Prior to joining Snell & Wilmer, Anna clerked for the Honorable Terry Fox on the Colorado Court of Appeals.

Judith Lajoie
Of Counsel | Denver
Tel. 303.634.2187

Judith Lajoie brings more than 30 years of experience in commercial and real estate finance. She previously served as vice president and general counsel to a large state-chartered bank and financial services company, where she supervised complex commercial litigation, served as counsel to the line and special assets bankers, and oversaw compliance with banking regulations, policies and procedures.

In addition, Judith has extensive experience in private practice, managing a variety of real estate and related transactional matters. She has represented institutional lenders, public homebuilders, developers and landlords in all aspects of commercial real estate lending, development and leasing, building-to-suits, government leasing and structured finance, construction and permanent lending (including mezzanine and equity financing) and loan workouts.