Citation to Discover – The Hearing you Never Want to Miss!

Oftentimes, client’s will come into my office with a stack of bills, primarily credit cards and several unpaid default judgments.  However, the court hearing that usually makes them come in an deal with the bills and unpaid judgments is the “Citation to Discover.”  The real name for this hearing should be “Garnishment Alert – You’ve got about one month until 15% of your gross paycheck starts to disappear.”

So what is a “Citation to Discover?”  Put simply, it is a hearing that demands your presence to learn about all of your assets and your place of employment.  Unlike simply seeking a garnishment, a “Citation to Discover” seeks to also learn about the location of your bank accounts and any other assets you may have.

What’s the result of not showing up?  A body attachment, which is a nice way of saying a warrant is out for your arrest, so that you can appear at this hearing and explain why you are in contempt of court…for not showing up at the scheduled “Citation to Discover” hearing.

So if you show up, what happens:?  You tell the creditor the location of your employer/s and your bank account/s.  Depending on the size of the unsatisfied judgment, all of your bank accounts will be emptied and the remaining balance of the unsatisfied judgment will be taken as a garnishment.  A garnishment is 15% of your gross income until the judgment is satisfied.

What if I already have two other garnishments occurring?  No Problem, the court simply allows the first two garnishments to complete.  Then when those judgments are fully paid, your new garnishment starts automatically.  In effect, you always see 15% of your gross pay deducted for garnishments all of the time until all three unsatisfied judgments are paid off.

Conclusion:  You should always show up at a “Citation to Discover” hearing.  You should meet with a bankruptcy attorney about one to two weeks before the hearing to determine whether a bankruptcy is good alternative to being garnished.  You should also consult with an attorney regarding any balances that you have in your bank accounts because shortly after your testimony at a Citation hearing, all balances in your accounts will be taken by the creditor just before the garnishment starts.

Chapter 13 Bankruptcy is a great solution to the “Citation to Discover” Trap.  Let’s say you have no savings, are already in a garnishment and now face the prospect of two more garnishments.  In this situation, you already are putting out 15% of your gross income towards the garnishments.   Most Chapter 13 plans only pay out 10% to unsecured creditors – that’s all creditors with all of your debts discharged in five years or less.  In a garnishment you pay 15% and not all of your debts are cleaned up.  Chapter 13 is less costly and globally solves all of your debt issues.

Why is the “Right of Set-Off” So Dangerous?

Bottom line: it means the bank can take your assets without a court order.  Here’s an example:

Sam has $1000 in a Savings Account at US Bank.  Sam owes US Bank $20,000 on a credit card.  Sam hasn’t paid the credit card in 3 months and is in default.  One day, Sam notices that the $1000 in his savings account has been taken by US Bank as payment on the $20,000 credit.  This is the right of set-off.

Most commonly, people who file bankruptcy experience the effect of “set-off”.  Commonly debtors will owe $5000 to a credit card issued by Chase Bank and also have their checking account at Chase.  Sometimes a debtor will file bankruptcy on Monday and receive their paycheck on Friday.  Chase can “take” the entire balance of the checking account including the paycheck without warning as a set-off against the credit card because the filing of bankruptcy immediately puts the credit card in default..

Recommendation:  If you are considering filing bankruptcy, make sure to get rid of all of your asset checking and savings account from a bank that you owe money to.  This will ensure that the right of set off does not occur.

utility security deposit

utility security deposit

When you file bankruptcy, you generally list all of your assets and all of your debts including all utility bills such as gas, light, cable, telephone and others.  In Illinois, the result is that the bill accrued prior to the filing date is discharged.  However, the cost of doing this is a 4 month security deposit equal to four times your average monthly bill.

Example:  A customer files bankruptcy on January 31, 2011.  Customer has been living in a new condominium conversion unit that has never been billed yet for electrical service.  On February 15, 2011; customer receives a bill for “estimated” electrical usage for the last two years.  What does the customer owe:

1) For the period of usage prior to January 31, 2011; the customer does not owe anything – the debt is discharged even though it was billed after the petition for bankruptcy was filed.
2)  For the period of usage February 1, 2011 to the present, customer owes all of electrical usage bill for this period.
3)  Security Deposit.  The customer’s average monthly bill is $100.00.  Therefore, the security deposit required typically within 2 months of filing bankruptcy is $400.00.  This security deposit is in addition to the actual bill that is also required to be paid.
4)  Two years from now, the customer moves.  What happens to the security deposit?  It is returned because it is the customer’s money.
5)  If the customer establishes electrical service at the new location with the same utility company, will the customer have to put down a security deposit?  Maybe, but probably no.  If the customer has a good payment history it is likely the security deposit will no longer be required.

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