Proposed Change to Florida
Can a Member’s Bankruptcy Wipe Out
a Debt Without Notice?
One of the most frustrating experiences for a Credit Union is discovering that a member filed for bankruptcy but no notice was received until after the discharge. Understandably, Credit Unions want to know: If we didn’t receive notice of the bankruptcy in time, is the debt still discharged? Unfortunately, the answer is: It depends. A recent bankruptcy court opinion addresses this issue (See In re McIntosh, 30 Fla. L. Weekly Fed. B93a (S.D. Fla. 2025).
The Basics of Discharge in Bankruptcy
In most consumer bankruptcy cases, eligible debts are discharged upon completion of the case. A discharge releases the debtor from personal liability for most debts and prohibits creditors from taking collection action.
Creditors are typically notified shortly after a bankruptcy is filed. The U.S. Bankruptcy Court sends notice by mail to the creditor’s listed address, usually from the debtor’s petition. But what happens if your Credit Union never receives that notice? Or if the debtor omits your claim entirely?
The Key Question: Was the Debt “Listed or Scheduled?”
Under 11 U.S.C. § 523(a)(3), a debt that is not “listed or scheduled” in the bankruptcy case may not be discharged if the creditor was deprived of notice and therefore had no opportunity to file a timely proof of claim or object to the discharge.
However, the type of bankruptcy and the nature of the debt significantly affect the outcome.
In “No-Asset” Chapter 7 Cases: Courts Often Still Discharge the Debt
In a Chapter 7 “no-asset” case, where the bankruptcy trustee determines there are no assets to distribute to creditors, courts generally hold that all dischargeable debts are wiped out—even if the creditor didn’t receive notice. This is based on the idea that filing a proof of claim wouldn’t have changed the outcome, so the lack of notice caused no practical harm.
This was the situation in the recent McIntosh case mentioned above. The Debtor filed for bankruptcy on July 8, 2002. The Chapter 7 case was a “no-asset” case, and she received her discharge on October 22, 2022. In March 2003, the creditor filed suit against Ms. McIntosh. A judgment was entered against Ms. McIntosh on November 19, 2003.
Almost twenty years later, on March 23, 2023, the creditor filed a garnishment action against Ms. McIntosh. The court found that the creditor was aware of the prior bankruptcy but believed the debt was not discharged because the creditor had not been listed or scheduled. Ultimately, the bankruptcy court found the creditor had violated the discharge injunction and was in contempt of court. The court awarded Ms. McIntosh $33,124.62 in legal fees and costs, plus $10,000.00 in compensatory sanctions. In all, the actions of the creditor in attempting to collect a debt of $7,382.90 ultimately cost that creditor $43,124.62.
In Asset Cases or Chapter 13: Timing May Matter
If the bankruptcy case involved assets (so creditors could have shared in a distribution) or if it was a Chapter 13 case (where creditors may be entitled to payments under a plan), the analysis changes. In these situations, failure to receive notice may preserve your right to collect the debt.
A creditor who never had the chance to participate in the case—by filing a claim or objecting to a Chapter 13 plan—may argue that the debt is not discharged due to lack of due process.
Special Rules for Certain Types of Debt
Even if a debt is listed in the case and the creditor receives notice, it may still be non-dischargeable if it falls into a special category, such as debts incurred by fraud, embezzlement, or willful and malicious conduct. These types of debts require the creditor to file an adversary proceeding in the bankruptcy court by a specific deadline.
Suppose your Credit Union never received notice of the bankruptcy. In that case, courts may allow you to bring a late nondischargeability action—but only if you can show you were deprived of notice and acted promptly once aware.
What Credit Unions Should Do
- Monitor Returned Mail and Bankruptcy Alerts: Sometimes, debtors list outdated addresses. If you spot clues—like returned mail, skip tracing alerts, or bankruptcy notations on a credit report—investigate immediately.
- Use Pacer: Before legal action, do a PACER (PACER stands for Public Access to Court Electronic Records) to confirm whether they have filed for bankruptcy.
- Act Quickly If You Discover a Late Bankruptcy: Once you find out about a bankruptcy that was discharged without notice, consult your lawyer to determine whether the debt may still be enforceable.
Bottom Line: If your Credit Union was unaware of a member’s bankruptcy until after discharge, you may still have options, especially if the case involved assets or you were deprived of due process. But in many no-asset Chapter 7 cases, courts will still apply the discharge. Knowing the distinctions can make the difference between contempt of court and a preserved claim. For a case-specific analysis or questions, we encourage you to contact a lawyer on our SVL team.
Non-Earnings Garnishments:
A Credit Union’s Role as Garnishee
As trusted financial institutions, you are integral to your members’ financial journeys. But, sometimes, navigating the legal landscape that affects your operations can be a challenge, particularly when you, as a Credit Union, are named as a garnishee in a garnishment process. Garnishments can be complex but understanding how to navigate it, while ensuring legal compliance and protecting your members, is essential. This article covers Florida law.
What is a Non-Earnings/Bank Account Garnishment?
A non-earnings/bank account garnishment occurs when a creditor secures a court order that requires a third-party financial institution, such as a Credit Union, to withhold funds from a debtor/member’s account to pay off a debt to a creditor. As a garnishee, the Credit Union plays a critical role in adhering to legal requirements, while balancing the needs of its members.
What Does It Mean for a Credit Union to Be a Garnishee?
If a creditor successfully obtains a Writ of Garnishment, and the Credit Union is named as garnishee, the Credit Union must freeze the member’s account(s) (or specific funds within the account) for the amount specified in the garnishment order. These funds will be held until the garnishment process is completed or until a resolution is reached. As simple as this may seem, it is important to remember that garnishment involves legal, financial, and ethical responsibilities.
Key Steps and Timing in the Garnishment Process:
Filing and Judgment: A creditor must first obtain a final judgment against a debtor before they can begin garnishment proceedings. The creditor then files a Motion for Writ of Garnishment, and a Writ of Garnishment is issued by the court.
Notice of Garnishment: Once the Writ of Garnishment is filed, state laws requires that the creditor notify the debtor and any third-party garnishee (such as a Credit Union) of the garnishment. The Writ of Garnishment must be served on the Credit Union by sheriff or process server. The Credit Union is required to respond to this order promptly (in Florida within 20 days). Upon receiving the Writ, the Credit Union must review the debtor’s accounts to determine the amount to be garnished.
Compliance with Federal Garnishment Regulations: When a Credit Union is served with a garnishment order, it must navigate a complex set of federal regulations designed to protect both the financial institution and the account holder. Under federal law, Credit Unions are required to determine whether the account contains federally-protected benefits, such as Social Security, VA, retirement income, unemployment compensation, or other federal payments. The Credit Union must complete an account review within two business days of receiving a Writ of Garnishment. This review involves two key steps: (1) determining whether any federal benefit payments were directly deposited into the account during the two-month period immediately preceding the date of the review (the “lookback period”), and (2) ensuring that the account holder retains full and customary access to the “protected amount.” The protected amount is defined as the lesser of: (1) the total sum of federal benefit payments posted to the account during the lookback period, or (2) the account balance at the time the review is conducted. This requirement ensures that federally-protected benefits remain accessible to recipients and are not improperly garnished.
In limited circumstances, federal benefit payments may be subject to garnishment despite general protections. If the plaintiff is the United States or a state child support enforcement agency, and the writ is accompanied by a “Notice of Right to Garnish Federal Benefits,” the Credit Union is permitted to freeze funds that would otherwise be protected. In such cases, the protected amount rules under federal regulation do not apply.
Freezing and Transferring Funds: Upon receiving the Writ and after the account review, the Credit Union must freeze the relevant funds (non-protected amount) in the member’s account, as directed. In Florida, the Credit Union can only freeze up to the double the amount stated in the Writ.
Handling Funds After the Account Review and Answer: For business accounts or garnishments issued by the United States or a state child support enforcement agency, if the Writ includes a “Notice of Right to Garnish Federal Benefits,” the Credit Union is required under Florida law to hold all deposits received from the time of service of the Writ through the time the Answer is filed and sent. Once an Answer is filed, any subsequent monies deposited in the Defendant’s accounts will not be subject to the Writ of Garnishment. As to other Writs (e.g., individual consumer garnishments not involving federal agencies or child support), the Credit Union should not hold or freeze any new deposits made after the account review is completed and the protected amount is determined. Only the funds present during the account review, excluding protected amounts, are subject to the garnishment.
Exemption Process: The debtor may file a Claim of Exemption after being served with the garnishment notice. If the debtor files a claim of exemption, the party initiating the garnishment can move forward until the court rules on that exemption. Florida, like most states, has specific exemptions that a debtor may claim to protect the funds in the account from garnishment, including unemployment benefits and retirement funds.
Final Timing for Resolution: If no exemption is claimed, a Final Judgment of Garnishment is entered in Florida, and the garnishee will be commanded to transfer the funds to the creditor. If a Claim of Exemption is filed, the court will hold a hearing, which could take several weeks depending on the court’s schedule. Upon the payment of the sums directed in the Final Judgment of Garnishment, the Writ of Garnishment shall be satisfied, and the Credit Union as the garnishee will be discharged of all liability to the creditor and debtor for the Writ of Garnishment.
Some Strategies for Credit Unions Handling Garnishment Orders
Navigating the garnishment process can be challenging, but by implementing a few key practices, a Credit Union can handle these orders effectively while supporting members. One important practice is ensuring timely, prompt, and clear communication with the members. It is important to inform the member about the garnishment order and explain the amount that will be withheld. Transparency fosters trust and reduces misunderstandings. Also, it is essential to stay updated on legal requirements and laws: federal and state laws regarding garnishment can change and it is important to ensure compliance with any new laws. This is especially critical when dealing with garnishment limits, exempt income, and the timing of garnishment freezes. In addition, the Credit Union must keep records for two years. The records must be sufficient to demonstrate compliance with the rules. A Credit Union’s ability to handle garnishment orders efficiently, not only keeps it compliant, but strengthens its relationships with its members.
As always, if you have any questions or need further clarification on garnishment procedures, don’t hesitate to reach out to one of the attorneys at SVL for legal advice.
Staff Spotlight on Adriana Barba
Adriana was born in Guadalajara, Mexico, but raised in Tepatitlán deMorelos, Mexico, where she currently resides with her family. She is married to her husband Diego Villalobos, and they have two daughters, Estefanía del Carmen, age 10, and Katerine Leticia, age 6. Adriana loves spending time with her family playing games, taking her daughters to gymnastics, working out, and watching movies with her girls.
Adriana began as a legal clerk at Sorenson Van Leuven in December 2024. She is now a part of our bankruptcy team where she sets up all incoming bankruptcy assignments from our Credit Union clients. She also prepares and files the Notices of Appearances with the Court. She will begin learning more of the bankruptcy process very soon! Adriana feels so lucky to be with the firm and has learned so much since December.
In her spare time, Adriana also enjoys reading novels and scientific journals, as well as going on group bike rides to nearby towns on older roads that are no longer high traffic areas. Adriana, you have been a breath of fresh air, and we are so grateful for you. Thank you for being an incredible asset to our team.
Staff Spotlight on Christina Trombly
Christina is from Boca Raton, Florida, but she has lived in Tallahassee for the majority of her life. She received her bachelor’s degree in psychology with a minor in music at Florida State University. While attending college, she played clarinet as a Marching Chief. Christina began playing clarinet in the sixth grade on her mom’s old marching band clarinet. Her dad also played drums while he was in school, so Christina grew up surrounded by a love of music!
Christina has been a part of our SVL team since November 2024. She is a legal assistant in our bankruptcy department. She loves the community here at Sorenson Van Leuven and how the firm makes a point to show everyone how valued and appreciated they are. Christina had an interest in learning more about the legal field due to having a passion to help others.
In Christina’s spare time away from the office, she enjoys reading, working out at the gym, taking walks, and spending time with her family. One of her favorite spring and summertime activities is going sailing with her dad at Shell Point Beach! This summer will also consist of many memories being made as Christina is traveling to Italy and Spain this summer with her family. She is most excited about visiting Cassino, Italy, where her grandmother is from! She is also excited for the food – her absolute favorite cuisine is Italian!
Christina, thank you so much for all you do at our firm. Your hard work and dedication is so appreciated!
ENGAGE Conference 2025
Our firm attended the ENGAGE Conference in Orlando on June 17-June 20 and we had a great time visiting with our Credit Union clients and seeing all of you there. We also had the opportunity to host a booth inside the exhibit hall where we are able to interact and network, as well. This event is always one we look forward to each year.
