Employers and other garnishees in Michigan should begin making preparations now for complying with the state’s revised garnishment system, which takes effect Sept. 30, 2015. Gov. Rick Snyder recently signed a law that overhauls Michigan’s garnishment system to decrease the risk for employers and other garnishees who commit administrative errors while implementing garnishments.
In addition to streamlining the system, the new law makes it more difficult for judgment creditors to secure default judgments against garnishees who fail to comply with a garnishment. This bill alters the garnishment system for employers and other parties who make miscellaneous contractual periodic payments to garnishees, like rent or payments made on a land contract. It does not apply to payments made by financial institutions.
New Provisions
Before, garnishments had to be renewed every 182 days. Now, they continue indefinitely until the debt is paid off, reducing the administrative burden on both judgment creditors and garnishees. Instead of paying the garnishee a $6 fee every time the garnishment is renewed, the judgment creditor now pays the garnishee a $35 flat fee per garnishment.
The judgment creditor is also required to provide a statement of the balance remaining on the judgment (including interest and costs) to the garnishee at least once every six months after receiving the first payment, and must provide the defendant and the garnishee a release of garnishment after the balance of the judgment is paid in full, within 21 days.
Default judgments
The statute imposes numerous new requirements making it more difficult for a judgment creditor to procure a default judgment against the garnishee. A creditor may obtain default judgment if the garnishee:
Creditors requesting a default judgment must send copies of the request for entry of default and request for the default judgment to the garnishee. The garnishee may comply with the garnishment after default, but before the default judgment, by mailing the judgment creditor, the defendant, and the court a disclosure certifying that the garnishee will immediately begin withholding available funds or otherwise begin complying with the garnishment. After entry of default judgment, the court may reduce the amount of the judgment if the garnishee certifies that the failure to comply was the result of administrative error. The law gives garnishees more opportunities to cure administrative errors, and makes the process of procuring a default judgment against a noncompliant garnishee lengthier for the creditor.
Priority of Garnishments
The new law provides that garnishments have priority in the order they are received, except that income withholding for child or family support and tax levies of the state of Michigan or a local governmental unit both have priority over garnishments.
The new law will apply to garnishments issued after Sept. 30, 2015. The old rules will apply to any garnishments issued before that date. If you have questions about the new garnishment law, please contact your Warner attorney or a member of the firm’s Restructuring and Insolvency Practice Group.
