Illinois Supreme Court Order Changes Collection Proceedings During COVID-19

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On Friday, April 24, 2020, the Illinois Supreme Court issued an order that affects how banks and other financial institutions must respond to certain civil garnishment and collection proceedings in Illinois through the end of Governor Pritzker's Gubernatorial Disaster Proclamation (the "Supreme Court Order").  

The Supreme Court Order essentially requires banks served with a non-wage garnishment summons or a third-party citation to discover assets to automatically release funds to the debtor, under certain circumstances.  The Supreme Court Order follows an Executive Order issued by Governor Pritzker on April 14, 2020, which temporarily halted all new court collection and garnishment proceedings related to “consumer debt” for the duration of Illinois’s stay-at-home orders. 

Though the Supreme Court Order expressly references Governor Pritzker’s earlier order, it is different in several important respects. For one, unlike Governor Pritzker’s order, the Supreme Court Order is not limited to “consumer debt” collection actions.   The Supreme Court Order also only affects garnishments and citations served on “depository financial institutions” (i.e., banks).

The Supreme Court Order significantly changes how banks should treat garnishments and citations during the statewide lockdown.  Typically, when a bank receives a garnishment summons or citation, the bank is required to “freeze” any assets that the bank is holding in the debtor’s bank account up to a certain amount. 735 ILCS 5/2-1402(f-1) & (m).  This allows a creditor sufficient time to go to court to obtain an order directing the bank to turn over the funds to the creditor, while the debtor has an opportunity to object. 

Under Illinois law, individuals who owe money based on a court judgment are entitled to declare certain property, including cash, exempt in an amount up to $4,000, which prevents the creditor from obtaining these funds through a court order.  735 ILCS 5/12-1001(b). This so-called “wild card exemption” provides individual debtors with a minimum source of capital to obtain basic necessities, and possibly a legal defense, during a collection action.  However, the exemption is not automatic. Instead, the debtor is required to go to court to assert the exemption and must get a court order before frozen assets will be released back to the debtor.

This, of course, is problematic if courts are closed, as the debtor is unable to assert the exemption and gain access to otherwise exempt funds.  Thus, the Supreme Court Order attempts to solve that issue by requiring banks to “automatically” release funds, up to $4,000, without waiting for a court order in many cases.   

The Supreme Court Order is surely well-intended, particularly given the unprecedented circumstances presented by COVID-19 and the ensuing court closures. However, the new Supreme Court Order raises several issues that will require creditors, debtors and banks to make decisions that are not always free from doubt and risk.   Improperly releasing frozen assets to a debtor could expose the bank to claims from the creditor for violating a citation or garnishment summons. Conversely, failing to release exempt funds could expose the bank to claims from the debtor, and even possibly a finding of contempt for failing to follow the new Supreme Court Order.

Until the Gubernational Disaster Proclamation and related Executive Orders are lifted, a bank that receives a citation to discover assets or garnishment summons in Illinois must carefully consider the following points:

The bottom line is that, even on routine or low value matters, financial institutions should ensure that their garnishment departments are consulting with in-house or outside counsel before releasing funds or responding to garnishment summonses or citations. The Supreme Court should also clarify its Order to address these issues and provide a safe harbor for banks who act in good faith to comply.

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