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We have a state levy on business account (Corporation) that has received protected funds in the name of one of the authorized signers. Looking at the definition of “Account holder – means a natural person against whom a garnishment order is issued and whose name appears in a financial institution’s records as the direct or beneficial owner of an account”. Within this rule I cannot find the definition of beneficial owner. We think the authorized signer is the owner of the business. The state levy is against the business not the person who received the funds (but may be the beneficial owner). Would this apply since this account is not in the name of the person receiving the fund’s? Would he be considered the “beneficial owner of the account”? If yes are the funds protected?
Generally the Federal Garnishment rules will not apply to a corporate account because the debtor (corporation) is not a natural person. The fact that there were federal benefit payments payable to a natural person coming into the corporate account makes things less than clear. Don and I will discuss and get back to you.
Answer by Don Blaine:
So we have a state levy against a business account at the bank and in that account, there has been an electronic payment of some type of protected funds made to an individual. Nothing in the Section 212 Garnishment Rule distinguishes (specifically includes or excludes) between personal and business accounts and both could be open to the account review process.Specifically, in the Preamble of the rule, the agencies decided to not limit the definition to an account held for personal, family or household purposes. The agencies noted that while a direct deposit of a benefit payment to a business account might be uncommon, they saw no reason to exclude such accounts from coverage so the business account, at this point, is still in play as having a protected amount.
Typically, the only non-personal entities that can open an account with a SSN instead of an EIN would be a sole proprietorship or single-member LLCs. I can therefore envision a situation where a bank could allow an accountholder, who is a natural person, to have his/her federal benefit payment, such as Social Security, direct deposited to a sole proprietorship business account or 1-member LLC account in the individual’s name. If so, the protected amount provision would likely apply since any entity (the sole proprietorship or the individual) would essentially be the same entity so the rule would tend to apply and there could be a protected amount based on the account review.
212.5(a) references timing of an account review and specifically states when “served a garnishment order issued against a debtor, a financial institution shall perform an account review. – Therefore, looks like the bank must perform an account review – good so far.
212.5(c) If the account review shows that a benefit agency deposited a benefit payment into the account during the lookback period, then the financial institution shall follow the procedures in Sec. 212.6. Therefore – looks like the bank must follow 212.6 procedures and freeze protected funds – at this point but wait for 212.5(f).
212.5(f) states that the bank “shall perform the account review separately for each account in the name of an account holder against whom a garnishment order has been issued. This is where it just got tricky as while the definition of Account provides no clarity, the definition of Account Holder does state this must be a “natural person” against whom a garnishment order is issued and whose name appears in the bank’s records as the direct or beneficial owner of an account. Since the garnishment order was not issued for a natural person (John Doe) but was instead issued in the name of a corporate entity ABC Corporation, the direct or beneficial ownership by John Doe in ABC Corporation is likely a moot issue which would mean no protected funds.
In other words, for the garnishment protections to apply, the “account holder” would have to be a natural person against whom a garnishment order was issued. The garnishment order was not issued against a natural person (it was issued against ABC Corporation). Therefore, I do not think that any of the benefit payment into the business accounts can be protected by the garnishment rule.
However, your state law may provide additional protections in this case. State law can’t provide fewer protections but may provide additional protections. You can contact your state’s consumer protection office for additional information. The federal government maintains a website that will allow you to link directly to a list of state and county consumer protection offices at Federal Citizen Information Center’s website which is at usa.gov. You can then select your state and should be directed to your state’s consumer protection office.
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