Opinion
No. 7-03-16414 MR.
July 19, 2004
Glen L. Houston, Hobbs, NM, Attorney for Debtor.
Frederick M. Mowrer, Albuquerque, NM, Attorney for Citibank.
ORDER DENYING MOTION TO RECOVER GARNISHED WAGES, SANCTIONS, ATTORNEY FEES AND COSTS
THIS MATTER is before the Court on the Motion to Recover Garnished Wages, Sanctions, Attorney Fees and Costs ("Motion"), filed by the Debtor, Scotty Folk, by and through his attorney of record, Glen L. Houston. Creditor, Citibank (South Dakota), N.A. ("Citibank"), by and through its attorney, Fredrick M. Mowrer filed an objection to the Motion. The Motion seeks to recover garnished wages and impose sanctions against Citibank for willful violation of the automatic stay under 11 U.S.C. § 362(h). At a preliminary hearing on the Motion, the Court directed the parties to submit legal memoranda. Counsel for the Debtor submitted a memorandum, but counsel for Citibank did not. The Court will assume that Citibank intends to rely on its objection filed in response to the Debtor's Motion, and makes its ruling based on the material now before the Court. After careful review of the Motion, the objection thereto, and the Debtor's supporting memorandum, the Court concludes that the Debtor is not entitled to any further relief, and the Motion must be denied.
The following facts are not in dispute:
1. Debtor filed his voluntary petition for bankruptcy under Chapter 7 of the Bankruptcy Code on August 14, 2003.
2. Prior to the petition date, Citibank obtained a writ of garnishment and began garnishing the Debtor's wages.
3. The garnished wages at issue in the Debtor's Motion were garnished pre-petition, and in possession of Citibank.
4. No wages were garnished post-petition.
5. Citibank initially refused to return the garnished wages, but ultimately returned the wages at issue to Debtor on or about January 5, 2004.
DISCUSSION
Debtor's Motion fails on both procedural and substantive grounds. First, Debtor's Motion was not properly brought before the Court. The Debtor's Motion seeks to recover wages garnished prepetition in accordance with 11 U.S.C. § 522(h), which presupposes that the motion seeks to recover a preferential transfer of the Debtor's property under 11 U.S.C. § 547 that the Chapter 7 trustee has not sought to avoid, and in which the Debtor claims an exemption. See In re Saults, 293 B.R. 739, 742 (Bankr.E.D.Tenn. 2002) (summarizing cause of action to recover garnished bank account "as a preferential transfer under 11 U.S.C. § 547(b), that the trustee has not sought to avoid . . . that the debtor has . . . claim[ed] the funds exempt, and that thus, the transfer may be avoided by the debtor pursuant to 11 U.S.C. § 522(h)."). A proceeding brought pursuant to 11 U.S.C. § 522(h) that seeks to recover a preferential transfer under 11 U.S.C. § 547 is a "proceeding to recover money or property" which must be brought by adversary proceeding in accordance with Rule 7001(1), Fed.R.Bankr.P. See In re Klingbeil, 119 B.R. 178, 180 n. 1 (Bankr.D.Minn. 1990) (noting that debtor's action to recover wages during preference period in accordance with § 522(h) should have been brought before the Court by adversary proceeding in accordance with Rule 7001(1) and (2)).
Second, the undisputed facts show that Debtor is not entitled to further relief. Since filing the Motion, Debtor has recovered the garnished wages at issue from Citibank. Thus, to the extent Debtor's Motion seeks to recover property in accordance with 11 U.S.C. § 522(h), the Debtor has already obtained relief. That portion of the Motion, which should have been brought by adversary proceeding, is now moot. The remainder of Debtor's Motion is based on an alleged willful violation of the automatic stay under 11 U.S.C. § 362(h).
The automatic stay protects debtors from "any act to obtain possession of property of the estate . . . or to exercise control over property of the estate." 11 U.S.C. § 362(a)(3). Debtor alleges that Citibank's post-petition retention of the wages garnished pre-petition constituted an impermissible exercise of control over property of the estate in violation of 11 U.S.C. § 363(a)(3). Debtor's interpretation is incorrect.
As noted by this Court in In re Suarez, 149 B.R.193, 196 (Bankr.D.N.M. 1993), "monies paid pursuant to the writ of garnishment prior to the filing of the bankruptcy petition are not affected by the automatic stay and are not, absent some other action being brought, property of the estate." Similarly, the bankruptcy court in In re Bernstein, 252 B.R. 846, 848-849 (Bankr.D.Dist.Col. 2000) found that even when a creditor has an invalid lien, the failure to return estate assets is not a violation of the automatic stay, because retaining possession "is not an affirmative act altering the status quo such as to run afoul of the spirit of the automatic stay." The fact that the lien may be avoidable as a preference "adds nothing to the automatic stay analysis . . ." Id. at n. 2. Finally, in In re Saults, a case brought by a debtor to recover funds from a garnished bank account in accordance with 11 U.S.C. § 522(h), the bankruptcy court concluded that "the defendant's [creditor's] post-petition receipt of funds garnished pre-petition and the defendant's [creditor's] refusal to turn the funds over to the debtor did not constitute violations of the automatic stay by defendant[creditor]." Saults, 293 B.R. at 749.
Here, the wages at issue were garnished before Debtor filed his bankruptcy petition and were in possession of the creditor prior to the petition date. In accordance with the cases cited above, Citibank's post-petition retention of the wages garnished pre-petition and its post-petition refusal to return the wages, do not constitute a willful violation of the automatic stay.
WHEREFORE, IT IS HEREBY ORDERED that the Debtor's Motion Motion to Recover Garnished Wages, Sanctions, Attorney Fees and Costs is DENIED.