Has your bank account been garnished? That certainly produces a helpless feeling but don't accept the loss until you know whether or not the funds garnished were exempt or not. Under Oregon law, a debtor is entitled to challenge any garnishment. (ORS § 18.700 Manner of making challenge to garnishment; http://www.oregonlaws.org/ors/18.700) After garnishment has occurred, you will receive certain documentation and forms by the garnishor in order to assist you in determining whether a challenge is appropriate and to instruct you as to how to file a challenge.

One basis for a challenge is that the garnished funds were exempt because they represented 75% or less of disposable income, however, you will need to be able to show that the funds garnished were from wages. Any funds not identifiable as from wages will not be exempt under that criteria.

The following is a real life example of how such a question regarding determination of exempt funds may arise.

The Question

Are the funds in the amount of $710.62 which were in Mr. J's checking account on June 29, 2011, identifiable as wages exempt from garnishment by employer/garnishee and are they still exempt from garnishment?

Oregon Wage Exemption Law

ORS 18.385(1) exempts 75% of disposable earnings from garnishment.
ORS 18.385(1) - "Except as provided in this section, 75 percent of the disposable earnings of an individual are exempt from execution."
Wage Exemption Minimum
ORS 18.385(2) exempts an absolute minimum amount of disposable earnings from garnishment regardless of the percentage calculation established in paragraph ORS 18.385(1). For a two week pay period, the amount of this minimum exemption is $392.
ORS 18.385(2) - " The disposable earnings of an individual are exempt from execution to the extent that payment under a garnishment would result in net disposable earnings for an individual of less than the following amounts: ...(b) $392 for any two week period;...."
For confirmation of this interpretation, i.e. that the referenced section ORS 18.385(2)(b) amount of $392 for a two week pay period is a lower limit on the amount that can be exempted, see ORS 18.840 Wage Exemption Calculation Form's wage exemption calculation step 5 which states:
"5. Minimum exemption (check one)
__ $196 (payment of wages weekly)
__ $392 (payment of wages every two weeks)"
ORS 18.840 further states explicitly that the intent is to exempt a minimum amount from garnishment per pay period:
ORS 18.840 - "....The minimum exemption is designed to ensure that an employee receives at least a certain minimum amount in any ... [pay] period...."
Character of Exempt Funds Deposited in Financial Institution
ORS 18.348(1) establishes that exempt disposable income remains exempt when deposited in a financial institution provided the debtor can reasonably identify the funds at issue as exempt. (Note that a limit of $7500 is placed on the amount of accumulated funds that may retain their exempt character.)
ORS 18.348(1) - "Funds that are exempt from execution under ORS ... 18.385 (Wage exemption) ... remain exempt when deposited in an account in a financial institution as long as the exempt funds are reasonably identifiable."
Identification of Exempt Funds Commingled With Non-exempt Funds
ORS 18.348(2) allows for comingling of exempt and non-exempt funds and requires the use of first in, first out accounting principles in order to reasonably identify exempt funds.
ORS 18.348(2) - "The application of subsections (1) and (3) of this section is not affected by the commingling of exempt and nonexempt funds in an account. For the purpose of identifying exempt funds in an account, first in, first out accounting principles shall be used."
Multiple Writs of Garnishment
ORS 18.627(1) establishes that the first writ of garnishment is to be satisfied to the fullest extent possible before making payment on a subsequent writ and only if there are garnishable funds available after making payment on the first writ. Exceptions to the first come, first serve principle is when the law gives priority to certain garnishments such as for child support.
ORS 18.627(1) - "Except as otherwise provided by law, the first writ of garnishment delivered to a garnishee has priority over all other writs delivered to the garnishee for the same debtor. A garnishee shall make payments or deliver property under a subsequently delivered writ only if there is garnishable property of the debtor remaining in the garnishee’s possession, control or custody after complying with the first writ delivered to the garnishee."

Application

On the date of garnishment, June 29, 2011, Mr. J had a total of $1010.62 in his account. Those funds consisted of a $300 deposit made on June 29 (note the irony that this deposit of funds from Mr. J's parents, intended to help him pay living expenses, occurred on the same day as the garnishment), which funds are not challenged as to garnishment because of the first in, first out principle, ORS 18.348(2). The remaining $710.62 are traceable to wages deposited in an amount of $792.04 on June 24 and are challenged.

On June 24, 2011, Mr. J received a pay check from his employer. His disposable income, arrived at after subtracting mandatory withholding amounts from his gross pay, was $1828.34 (Gross $2267.61, Federal income tax $200.86, State income tax 114.37, Social Security tax $92.21, and Medicare tax $31.83). That disposable income was then garnished in an amount of $913.67 ("3rd Pty Pay") in order to satisfy an Oregon Department of Justice withholding order for spousal and child support. The garnishment represented 50% of debtor's disposable income resulting in net pay equal to 50% of disposable income, far below the statutory exemption of 75%. Therefore, Mr. J's net pay of $792.04 is exempt under Oregon law, ORS 18.385(1).

Consider that , if there had been a second writ served on Mr. J's employer, that garnishor would have stood behind the Department of Justice's writ and would have received nothing under ORS 18.627(1) because there would have been no garnishable wages left. As noted above, the balance of J's pay check, i.e. $792.04, was exempt. If Garnishor had been the garnishor serving that second writ, she would have received nothing. And why is that? Because the balance of Mr. J's wages were exempt from garnishment.

In our case at hand, Garnishor did not serve a writ on Mr. J's employer but on his bank. The same funds are involved, i.e. the balance of his wages after garnishment by the Department of Justice. We agree those wages retain their exempt character under ORS 18.348(1) because they are traceable to exempt wages before deposit. If Garnishor would not have been permitted to garnish these wages from Mr. J's employer because they were exempt, why would she now be able to garnish those same wages, which we know retain their exempt character, now that the financial institution controls them? The fact is that these wages are EXEMPT FROM GARNISHMENT without exception. The statute does not say exempt unless the garnishor is different from the first garnishor; exempt unless the garnishor is garnishing from a different garnishee; nor does it say exempt unless the debtor is an unsavory character who owes garnishor a lot of money which garnishor really, really wants to get back. The statute simply says the funds are exempt from garnishment because they retain their exempt character when deposited in a financial institution.

But what purpose is the minimum exemption described in ORS 18.385(2)? This statute makes sure that garnishors do not take more than an absolute minimum amount from the debtor. When an individual's disposable income for a two week period exceeds $522.67, then a garnishor may garnish up to 25% of disposable income with the remaining 75% or $392 going to the debtor. But when an individual's disposable income for a two week period falls below $522.67, then a garnishor may garnish only the amount of disposable income that exceeds $392 because the statute says that $392 is the minimum that can be exempted. Garnishor is prevented from taking more because what is left, i.e. $392 is exempt regardless of the 25/75% split applied when the disposable income exceeds $522.67.

I do not know whether there are actual people who benefit from this protection for low wage earners. Perhaps if one earns minimum wage and has other mandatory deductions or child support payments, it may be possible that their disposable income could fall below $522.67 per two week period. Regardless whether this statute affects real people or only a hypothetical person, the Oregon legislature is apparently unwilling to force individuals to make ends meet on less than $392 per two week period. If laws are too harsh, e.g. putting no limit on the amount of disposable income garnishors may garnish, the judicial system, which is obliged to administer these laws, will lose its credibility with the public and risk the result of forcing people out onto the street or into a life of crime in order to survive (e.g., Is it a criminal act to steal bread to avoid starvation or to feed your hungry family?).

Conclusion

Mr. J had funds in his checking account on the day of garnishment in the amount of $1010.62. Of those funds, $300 were not from wages and are subject to garnishment. This leaves $710.62 which amount was exempt from garnishment, being traceable to exempt wages paid on June 24. Exempt wages retain their exempt status when deposited in a financial institution and may not be further garnished because they are still exempt. Therefore, $710.62 should be returned to debtor with garnishor retaining the balance of $300.