Posted On: September 1, 2009 by Peter Klose

Restraining Notices and New York State Bank Accounts Exempt Income Protection Act (EIPA).

You owe some money on a debt, the creditor gets a judgment against you, and suddenly, your checking account is frozen by a restraining notice. That scenario is all too common, especially when we all live in a large metropolitan neighborhood, change addresses often, and sometimes don't get copies of the lawsuit naming you as a party to the action.

New York State has recently amended its laws relating to when a creditor seeks to restrain a debtor’s bank account. Specifically, New York state law exempts certain types of income from debt collection. These exemptions include veterans’ benefits, Social Security, Social Security disability, pensions, public assistance, workers compensation, unemployment insurance, child support, as well as spousal support and maintenance. Although the New York State exemptions are intended to ensure "at-risk" New Yorkers have the means to buy food, pay rent, and have basic necessities, procedural loopholes have increasingly led creditors to freezing bank accounts containing legally exempt income.

As a result, New York has recently enacted the Exempt Income Protection Act (EIPA). The EIPA limits creditors’ ability to restrain exempt funds stipulating that banks cannot restrain the first $1,716 in a debtor’s account if he or she does not receive government benefits or assistance.

In cases where a debtor is receiving governing assistance, banks cannot restrain the first $2,500 of an account during a forty five day period prior to a restraining notice. If a creditor objects to a claimed exemption, it is the creditor that has the burden to prove that a debtor’s account funds are not exempt or seek to enforce a restraining notice elsewhere. Intended to close procedural loopholes, the new statute is a further effort to protect vulnerable residents from destitution.

Bottom line-- those with only small amounts of money in the bank, receiving governmental subsidies and pensions have protection from Creditors seeking to freeze such assets. You should immediately review the restraining notice and let your bank know if the benefits are being frozen.