NEW ORLEANS — The 5th Circuit Court of Appeals has
a finding in favor of a bankruptcy trustee in a dispute over
$1,756.04 in garnished wages.
Tower Credit Inc., a consumer finance and loan company, had
appealed a ruling from the Middle District of Louisiana that sided
with the trustee overseeing the Chapter 7 bankruptcy of Christon
The company had served a garnishment order on Jackson's employer
in January 2012 and was collecting until Jackson filed for bankruptcy
protection in November 2012.
Bankruptcy trustee Martin Schott sought to void the garnishments
within 90 days prior to Jackson's filing as "preferential
transfers." The bankruptcy court in the Middle District of
Louisiana granted summary judgment to Schott with the district court
affirming that decision.
On appeal, Tower argued that “the garnished wages should be
considered transferred on the date the garnishment order was served,
before the preference period, and therefore the trustee should not be
entitled to recovery,” according to the ruling.
The 5th Circuit panel, which included Judges Eugene
Davis, Leslie Southwick and James Dennis, disagreed with Tower and
affirmed the district-court finding.
On March 13, the panel held
that Supreme Court precedent and “overwhelming weight of
persuasive authority” in bankruptcy code makes clear that a
debtor’s wages cannot be transferred until they are earned.
“Thus, we hold that a creditor’s collection of garnished wages
earned during the preference period is an avoidable transfer made
during the preference period even if the garnishment was served prior
to that period,” Dennis wrote.
Dennis wrote that until a debtor earns wages, “there is no
property that the creditor can garnish or that the debtor can
“The creditor’s right to the particular funds that are
garnished exists only because the debtor is entitled to be paid those
funds as wages; it does not exist unless the debtor first acquires
the right to be paid.”