Can a Judgment Creditor Garnish PPP and CARES Act Funds?

Simon PLC Attorneys & Counselors – December 2020 Memorandum

Can a Judgment Creditor Garnish PPP and CARES Act Funds?

Bloomfield Hills, Michigan – Questions have been raised by creditors’ rights attorneys and practitioners whether funds received by businesses and individuals from either the Paycheck Protection Program and/or CARES Act recovery rebates are subject to post judgment garnishment and/or levy.  Can a judgment creditor avail itself of the post judgment remedy of garnishment to restrain and levy these government given funds?

The short answer is that there is nothing in the PPP, CARES Act and the Healthcare Enhancement Act (CARES Act 2.0), that expressly provides any exemption from garnishment and/or levy by judgment creditors for either economic impact payments (“EIP”) or PPP loan proceeds. The Cares Act authorizes the Treasury Secretary to issue guidance or a rule regarding whether the funds are exempt or not.

If Treasury Secretary Steven Mnuchin exercised this authority with the approval of the Congress, the issue could be quickly resolved and judgment creditors would know expressly whether such funds could or could not be garnished to satisfy a judgment.  The Trump administration did act and the Treasury Secretary did in fact exercise his authority. Thereafter, the issue failed to advance in the United States Congress. The United States Senate took up the issue regarding the garnishment of CARES Act funds from individuals.  On July 23, 2020, the Senate unanimously passed bipartisan Senate Bill 3841 to exempt these funds from judgment creditors.  The summary of Senate Bill 3841, reads, “To protect 2020 recovery rebates for individuals from assignment or garnishment and for other purposes.  This bill prohibits the attachment of a 2020 recovery rebate by legal process, including assignment, levy, or garnishment.”  The bill was then sent to the United States House of Representatives but the House, led by Speaker Pelosi, failed to take the measure to the floor of the House.

As a result of this inaction at the Federal level, some states have taken the responsibility to declare whether funds are exempt or not.  In Michigan, there is no prohibition in place against garnishment of CARES Act funds.  Some states, like New York and California have taken action that expressly exempts the garnishment of CARES Act recovery payments from individuals.  New York’s Attorney General Leticia James, boldly declared that her office will prosecute anyone or any business that attempts to garnish Cares Act recovery payments and seek restitution of funds garnished by anyone who attempts to collect such funds in violation of state and federal laws.  The Governor of California issued an executive order that exempts garnishment for any individuals receiving federal, state or local government financial assistance in response to the COVID-19 pandemic.  Ohio and Illinois have also exempted these funds from garnishment (Ohio) or suspended wage garnishment (Illinois).

What about PPP funds?

Businesses that received PPP funds are commercial entities and necessarily different than individuals and consumers. There is no specific exemption of PPP funds from garnishment or levy by judgment creditors.  Generally, PPP funds are subject to garnishment by judgment creditors.  Beware, however, that the specific uses outlined for the use of PPP funds could be in conflict with states’ garnishment laws.  Arguments could be raised by judgment debtors that state laws allowing garnishments conflict with the federal law authorizing the CARES Act.  Future court decisions could impact the ability of judgment creditors to garnish PPP funds.

As the President and Congress continue to negotiate another round of economic stimulus, as well as the potential for a change in administrations, lawyers and practitioners must be mindful of specific exemptions that could be in the next bill that would limit judgment creditors’ rights in the garnishment of EIP or PPP funds. We at Simon PLC Attorneys & Counselors are always ready to answer your questions and can ensure your debts are always collected in harmony applicable state and federal law.

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