Section E - UIPL 33-99

Legal Action

Overview

Introduction Civil and criminal actions vary extensively from state to state in:
Definition of terms.

SESA authority.

Processing requirements.

This TAG does not attempt to provide detailed information on the specifics of legal action for the SESAs. Legal action can be expensive and time-consuming, and therefore, may not be the most cost-effective recovery method.

SESAs are encouraged to compare dollars spent to dollars recovered as a direct result of each recovery method. If your purpose is recovery, care should be taken to ensure that it does not cost more to recover the overpayment than the amount overpaid.

Reasons for legal actions Two reasons for legal action:

Recovery of overpaid UI benefits.

Deterrent for fraudulent activities.

In this section The following topics will be discussed in this section.

Topic Page

Prosecution 2

Judgments 4

Wage Garnishments 5

Liens and Levies 7

Probate 9

Bankruptcy 10

Summary of Guidelines 12

Prosecution

Introduction The main purposes of a prosecution program are to punish flagrant offenders and to deter others from committing fraud. While prosecution has proven to be an effective recovery method for some SESAs, it has had a negative impact on others by placing the responsibility for recovery in the hands of the courts or the probation officers.

Impact on recovery Criminal proceedings that result in a guilty verdict can impact the recovery process. Some of the factors that could adversely impact recovery are:
Restitution is not always ordered by the court.

Probation officers add another layer between the SESA and the debtor.

Criminal proceedings may prevent or delay recovery through a civil action process.

Time expended to prepare for and to attend proceedings may impact collection activities on non-prosecution cases.

Measuring effectiveness Criminal actions take a great deal of staff time. SESAs are encouraged to collect statistical data:

To measure the effectiveness of prosecution as a recovery method.

To determine if resources would be better spent on civil rather than criminal action.

Unique approach While the debtor is under the jurisdiction of the courts, one SESA⁽¹⁾ reported that a judgment can be requested to enable recovery through civil action. The judgment allows the SESA to pursue recovery for an additional seven years.

Guidelines
When the decision to prosecute is made, it is recommended that SESAs:

Insist that restitution be made part of every plea bargain.

Request the sentencing court to require restitution as part of sentencing and to retain jurisdiction over the defendant until payment has been completed.

Request the court to include a specific payment schedule or a date by which total restitution must be made in the sentence.

Develop and implement follow-up procedures to ensure that the defendant is abiding by the court's instructions.

Capture data on the cost of recovery to ensure recovery via prosecution is cost effective.

Judgments

Introduction A judgment is the result of the basic type of a lawsuit and, depending on state law, may be required before other types of legal action can be pursued. If the SESA is successful, the court renders a "judgment." In many cases where the defendant fails to appear, the judgment is obtained by default. However, the fact that the court has awarded a judgment does not of itself assure that the SESA will recover.

Failure to pay If the defendant fails to pay the judgment voluntarily, the next step is usually to issue a writ of execution to the Sheriff directing him to seize as much of the defendant's property, not exempt from execution, as is necessary to satisfy the judgment.

Consider potential for recovery Prior to pursuing legal remedies, SESAs should consider the potential for recovery, i.e., prior outstanding wage garnishments, disability, and/or other factors.

Wage Garnishments

Introduction Garnishment means any legal procedure through which certain earnings of an individual are required to be withheld for the payment of a debt. Wage garnishment activities vary extensively from state to state. In some states, wage garnishment is limited to one pay period, and in other states, wage garnishments remain in effect for several months.

Judgment must be obtained
by some SESAs In Sniadock v. Family Finance Corp. of Bay View, 395 U.S. 337 (1969), the U.S. Supreme Court held that garnishment is not permitted until a judgment is obtained.
Most garnishments are made by court order under which a creditor seeks to reach an employee's earnings before they are paid so that they may be applied to the satisfaction of the debt.

Limits to amount garnished Title III of the Consumer Credit Protection Act (The Federal Wage Garnishment Law) limits the amount of an employee's "disposable earnings" which may be garnished in any one week, and protects the employee from discharge because of garnishment for any one indebtedness.

The maximum part of the total disposable earnings of an individual which is subject to garnishment in any work week may not exceed the lesser of either 25 percent of the disposable earnings for the week or the amount by which the disposable earnings for that week exceeds 30 times the Federal minimum hourly wage prescribed by Section 6(a)(1) of the Fair Labor Standards Act in effect at the time the earnings are payable.

Federal Wage Garnishment Law The Federal Wage Garnishment Law ⁽²⁾ does not annul, alter, affect or exempt any person from complying with state laws which prohibit garnishments or provide for more limited garnishments than are allowed under Federal law. Any provision of a state law that subjects less of an individual's earnings to garnishment than does the Federal law prevail under a garnishment order. On the other hand, the Federal provision is applied if it results in a smaller garnishment.

Some SESAs do not require
a judgment for recovery through wage garnishment Some SESAs reported the capability for pursuing a wage garnishment as soon as the overpayment determination is final. The overpayment determination is considered to be the same as a judgment. An example of one SESA's authority is shown below:

"Any determination of overpayment made under this section which becomes final may be enforced by a wage execution in the same manner as a judgment of the superior court when the claimant fails to pay according to his repayment schedule. The court may issue a wage execution upon any final determination of overpayment in the same manner as in cases of judgments rendered in the superior court, and upon the filing of an application to the court for an execution, the administrator shall send to the clerk of the court a certified copy of such determination." ⁽³⁾

Liens and Levies

Introduction The definitions for terms such as levy and lien can vary from state to state. The most common definitions appear to be:
A lien is a claim on the property of another as security against the payment of a debt. A perfected statutory lien, duly filed in the county in which the debtor owns real or personal property, is an effective recovery technique.

A levy is used to attach a debtor's bank account and transfer the funds to the collection organization as payment against the amount owed.

Impact of a lien Impact of a lien:

Property is foreclosed and sold.

A prospective buyer cannot obtain a clear title to the property. The result is that the lien will usually be satisfied before the title to the property changes hands.

Outstanding liability is included on credit bureau reports.

General lieninformation State laws vary, but typically a judgment becomes a lien on any real or personal property the judgment debtor owns in the county where the judgment is docketed. If the debtor owns property in another county, a certified copy of the judgment can be filed in the other county.

Some states have the authority by statute to file a lien without first commencing an action.

Explore potential for enhancing recovery programs State taxing organizations often have more extensive authority to recover outstanding tax debts. SESAs are encouraged to explore the potential for adapting methods and tools used by other organizations to enhance their recovery programs.

Unique approach One SESA⁽⁴⁾ reported statutes that provide for placing a "junior lien" on vehicles requiring motor vehicle registration, e.g., automobiles, motor homes, motorcycles, boats, trailers. The liened vehicle cannot be sold or disposed of until overpaid UI benefits are recouped in full.

Probate

Introduction At times a claimant dies prior to the overpayment being recouped. Usually a decedent's will is probated or the estate is administered in the probate court of the county in which the decedent was domiciled at death.

State statutes govern claims State statutes govern how claims against the decedent's estate are presented and handled.
The statutes usually provide for some form of public notice, such as newspaper advertising. Creditors are then required to give notice of their claims within a period specified either by statute or by court order, often within six months. In most states the failure to present the claim within the specified period bars its payment.

Guidelines It is recommended that SESAs:

Develop written guidelines and procedures for filing probate claims whenever an estate may have sufficient assets to cover the amount owed.

Periodically evaluate recovery through the probate process to determine cost-effectiveness and impact on resources available to pursue recovery of overpaid benefits.

Bankruptcy

Introduction Society has provided a system whereby debtors may be relieved of their debts and start economic life anew. This is achieved by means of the Federal Bankruptcy law and state insolvency laws. However, state insolvency statutes are subordinated to the Federal Bankruptcy Act. SESAs must cease active collection activities and satisfy all actions in bankruptcy cases to avoid civil penalties.

Bankruptcy chapters Bankruptcy chapters include:
Chapter 7: This type of bankruptcy is often referred to as "total liquidation." The debtor is allowed to keep certain essential assets (such as pension plans and up to $7,500 of equity in a house) but must surrender remaining assets to be liquidated to pay off creditors.

Chapter 11: This type of bankruptcy is referred to as "business reorganization" rather than liquidation. A business is allowed to work out a payment plan to meet its obligations.

Chapter 13: This type of bankruptcy is for wage earners and others with a regular income. It allows the debtor to keep certain assets while they pay off the remainder of their debts during a three to five year period of time. During that time, creditors cannot pursue recovery through aggressive techniques.

Discharge in bankruptcy If the bankruptcy court (U.S. District Courts) declares the debtor bankrupt, all property, except that which is exempt, is gathered together and applied to payment of debts. A discharge in bankruptcy releases the bankrupt person from all provable debts, except for certain debts that the Bankruptcy Act declares to be unaffected by a discharge, for example, debts involving fraud.

Fraud overpayments In the case of fraud overpayments, the SESA has the option of filing a "Proof of Claim" or objecting to the discharge on the ground that the debt involves fraud. Unless the SESA expressly objects, and proves its case, the debt will be discharged.

Non-fraud overpayments In the case of non-fraud overpayments, the SESA can also file a "Proof of Claim" and accept as full payment the amount determined by the Bankruptcy Court. Since that amount will probably only be a small proportion of the total claim, it may not be cost effective to file the claim. In any event, the claim will be deemed liquidated by the discharge in bankruptcy.

Guidelines It is recommended that SESAs:
Develop written guidelines and procedures for the handling of bankruptcy cases.

Periodically evaluate recovery of bankruptcy cases to determine cost-effectiveness and impact on resources available to pursue recovery of other overpaid benefits.

Periodically review cases to identify potential improvements to collection procedures that may prevent claimants from electing to discharge debts through bankruptcy.

Summary of Guidelines

Introduction Legal action guidelines are provided for SESA consideration to enhance the recovery of overpaid UI benefits.

Prosecution
When the decision to prosecute is made, it is recommended that SESAs:

Insist that restitution be made part of every plea bargain.

Request the sentencing court to require restitution as part of sentencing and to retain jurisdiction over the defendant until payment has been completed.

Request the court to include a specific payment schedule or a date by which total restitution must be made in the sentence.

Develop and implement follow-up procedures to ensure that the defendant is abiding by the court's instructions.

Capture data on the cost of recovery to ensure recovery via prosecution is cost effective.

Probate It is recommended that SESAs:

Develop written guidelines and procedures for filing probate claims whenever an estate may have sufficient assets to cover the amount owed.

Periodically evaluate recovery through the probate process to determine cost-effectiveness and impact on resources available to pursue recovery of overpaid benefits.

Bankruptcy It is recommended that SESAs:
Develop written guidelines and procedures for the handling of bankruptcy cases.

Periodically evaluate recovery of bankruptcy cases to determine cost-effectiveness and impact on resources available to pursue recovery of other overpaid benefits.

Periodically review cases to identify potential improvements to collection procedures that may prevent claimants from electing to discharge debts through bankruptcy.

Footnotes:

1. For additional information, contact the Georgia Department of Labor.

2. Additional information about the Federal Wage Garnishment Law can be obtained from the Wage and Hour Division of the USDOL.

3. For additional information, contact the Connecticut Department of Labor.

4. For additional information, contact the South Dakota Department of Labor.

Introduction	Civil and criminal actions vary extensively from state to state in: Definition of terms. SESA authority. Processing requirements.
	This TAG does not attempt to provide detailed information on the specifics of legal action for the SESAs. Legal action can be expensive and time-consuming, and therefore, may not be the most cost-effective recovery method. SESAs are encouraged to compare dollars spent to dollars recovered as a direct result of each recovery method. If your purpose is recovery, care should be taken to ensure that it does not cost more to recover the overpayment than the amount overpaid.
Reasons for legal actions	Two reasons for legal action: Recovery of overpaid UI benefits. Deterrent for fraudulent activities.
In this section	The following topics will be discussed in this section.

Topic	Page
Prosecution	2
Judgments	4
Wage Garnishments	5
Liens and Levies	7
Probate	9
Bankruptcy	10
Summary of Guidelines	12

Introduction	The main purposes of a prosecution program are to punish flagrant offenders and to deter others from committing fraud. While prosecution has proven to be an effective recovery method for some SESAs, it has had a negative impact on others by placing the responsibility for recovery in the hands of the courts or the probation officers.
Impact on recovery	Criminal proceedings that result in a guilty verdict can impact the recovery process. Some of the factors that could adversely impact recovery are: Restitution is not always ordered by the court. Probation officers add another layer between the SESA and the debtor. Criminal proceedings may prevent or delay recovery through a civil action process. Time expended to prepare for and to attend proceedings may impact collection activities on non-prosecution cases.
Measuring effectiveness	Criminal actions take a great deal of staff time. SESAs are encouraged to collect statistical data: To measure the effectiveness of prosecution as a recovery method. To determine if resources would be better spent on civil rather than criminal action.
Unique approach	While the debtor is under the jurisdiction of the courts, one SESA⁽¹⁾ reported that a judgment can be requested to enable recovery through civil action. The judgment allows the SESA to pursue recovery for an additional seven years.
Guidelines	When the decision to prosecute is made, it is recommended that SESAs: Insist that restitution be made part of every plea bargain. Request the sentencing court to require restitution as part of sentencing and to retain jurisdiction over the defendant until payment has been completed. Request the court to include a specific payment schedule or a date by which total restitution must be made in the sentence. Develop and implement follow-up procedures to ensure that the defendant is abiding by the court's instructions. Capture data on the cost of recovery to ensure recovery via prosecution is cost effective.

Introduction	A judgment is the result of the basic type of a lawsuit and, depending on state law, may be required before other types of legal action can be pursued. If the SESA is successful, the court renders a "judgment." In many cases where the defendant fails to appear, the judgment is obtained by default. However, the fact that the court has awarded a judgment does not of itself assure that the SESA will recover.
Failure to pay	If the defendant fails to pay the judgment voluntarily, the next step is usually to issue a writ of execution to the Sheriff directing him to seize as much of the defendant's property, not exempt from execution, as is necessary to satisfy the judgment.
Consider potential for recovery	Prior to pursuing legal remedies, SESAs should consider the potential for recovery, i.e., prior outstanding wage garnishments, disability, and/or other factors.

Introduction	Garnishment means any legal procedure through which certain earnings of an individual are required to be withheld for the payment of a debt. Wage garnishment activities vary extensively from state to state. In some states, wage garnishment is limited to one pay period, and in other states, wage garnishments remain in effect for several months.
Judgment must be obtained by some SESAs	In Sniadock v. Family Finance Corp. of Bay View, 395 U.S. 337 (1969), the U.S. Supreme Court held that garnishment is not permitted until a judgment is obtained. Most garnishments are made by court order under which a creditor seeks to reach an employee's earnings before they are paid so that they may be applied to the satisfaction of the debt.
Limits to amount garnished	Title III of the Consumer Credit Protection Act (The Federal Wage Garnishment Law) limits the amount of an employee's "disposable earnings" which may be garnished in any one week, and protects the employee from discharge because of garnishment for any one indebtedness. The maximum part of the total disposable earnings of an individual which is subject to garnishment in any work week may not exceed the lesser of either 25 percent of the disposable earnings for the week or the amount by which the disposable earnings for that week exceeds 30 times the Federal minimum hourly wage prescribed by Section 6(a)(1) of the Fair Labor Standards Act in effect at the time the earnings are payable.
Federal Wage Garnishment Law	The Federal Wage Garnishment Law ⁽²⁾ does not annul, alter, affect or exempt any person from complying with state laws which prohibit garnishments or provide for more limited garnishments than are allowed under Federal law. Any provision of a state law that subjects less of an individual's earnings to garnishment than does the Federal law prevail under a garnishment order. On the other hand, the Federal provision is applied if it results in a smaller garnishment.
Some SESAs do not require a judgment for recovery through wage garnishment	Some SESAs reported the capability for pursuing a wage garnishment as soon as the overpayment determination is final. The overpayment determination is considered to be the same as a judgment. An example of one SESA's authority is shown below: "Any determination of overpayment made under this section which becomes final may be enforced by a wage execution in the same manner as a judgment of the superior court when the claimant fails to pay according to his repayment schedule. The court may issue a wage execution upon any final determination of overpayment in the same manner as in cases of judgments rendered in the superior court, and upon the filing of an application to the court for an execution, the administrator shall send to the clerk of the court a certified copy of such determination." ⁽³⁾

Introduction	The definitions for terms such as levy and lien can vary from state to state. The most common definitions appear to be: A lien is a claim on the property of another as security against the payment of a debt. A perfected statutory lien, duly filed in the county in which the debtor owns real or personal property, is an effective recovery technique. A levy is used to attach a debtor's bank account and transfer the funds to the collection organization as payment against the amount owed.

Impact of a lien	Impact of a lien: Property is foreclosed and sold. A prospective buyer cannot obtain a clear title to the property. The result is that the lien will usually be satisfied before the title to the property changes hands. Outstanding liability is included on credit bureau reports.
General lieninformation	State laws vary, but typically a judgment becomes a lien on any real or personal property the judgment debtor owns in the county where the judgment is docketed. If the debtor owns property in another county, a certified copy of the judgment can be filed in the other county. Some states have the authority by statute to file a lien without first commencing an action.
Explore potential for enhancing recovery programs	State taxing organizations often have more extensive authority to recover outstanding tax debts. SESAs are encouraged to explore the potential for adapting methods and tools used by other organizations to enhance their recovery programs.
Unique approach	One SESA⁽⁴⁾ reported statutes that provide for placing a "junior lien" on vehicles requiring motor vehicle registration, e.g., automobiles, motor homes, motorcycles, boats, trailers. The liened vehicle cannot be sold or disposed of until overpaid UI benefits are recouped in full.

Introduction	Society has provided a system whereby debtors may be relieved of their debts and start economic life anew. This is achieved by means of the Federal Bankruptcy law and state insolvency laws. However, state insolvency statutes are subordinated to the Federal Bankruptcy Act. SESAs must cease active collection activities and satisfy all actions in bankruptcy cases to avoid civil penalties.
Bankruptcy chapters	Bankruptcy chapters include: Chapter 7: This type of bankruptcy is often referred to as "total liquidation." The debtor is allowed to keep certain essential assets (such as pension plans and up to $7,500 of equity in a house) but must surrender remaining assets to be liquidated to pay off creditors. Chapter 11: This type of bankruptcy is referred to as "business reorganization" rather than liquidation. A business is allowed to work out a payment plan to meet its obligations. Chapter 13: This type of bankruptcy is for wage earners and others with a regular income. It allows the debtor to keep certain assets while they pay off the remainder of their debts during a three to five year period of time. During that time, creditors cannot pursue recovery through aggressive techniques.
Discharge in bankruptcy	If the bankruptcy court (U.S. District Courts) declares the debtor bankrupt, all property, except that which is exempt, is gathered together and applied to payment of debts. A discharge in bankruptcy releases the bankrupt person from all provable debts, except for certain debts that the Bankruptcy Act declares to be unaffected by a discharge, for example, debts involving fraud.
Fraud overpayments	In the case of fraud overpayments, the SESA has the option of filing a "Proof of Claim" or objecting to the discharge on the ground that the debt involves fraud. Unless the SESA expressly objects, and proves its case, the debt will be discharged.
Non-fraud overpayments	In the case of non-fraud overpayments, the SESA can also file a "Proof of Claim" and accept as full payment the amount determined by the Bankruptcy Court. Since that amount will probably only be a small proportion of the total claim, it may not be cost effective to file the claim. In any event, the claim will be deemed liquidated by the discharge in bankruptcy.
Guidelines	It is recommended that SESAs: Develop written guidelines and procedures for the handling of bankruptcy cases. Periodically evaluate recovery of bankruptcy cases to determine cost-effectiveness and impact on resources available to pursue recovery of other overpaid benefits. Periodically review cases to identify potential improvements to collection procedures that may prevent claimants from electing to discharge debts through bankruptcy.

Introduction	Legal action guidelines are provided for SESA consideration to enhance the recovery of overpaid UI benefits.
Prosecution	When the decision to prosecute is made, it is recommended that SESAs: Insist that restitution be made part of every plea bargain. Request the sentencing court to require restitution as part of sentencing and to retain jurisdiction over the defendant until payment has been completed. Request the court to include a specific payment schedule or a date by which total restitution must be made in the sentence. Develop and implement follow-up procedures to ensure that the defendant is abiding by the court's instructions. Capture data on the cost of recovery to ensure recovery via prosecution is cost effective.
Probate	It is recommended that SESAs: Develop written guidelines and procedures for filing probate claims whenever an estate may have sufficient assets to cover the amount owed. Periodically evaluate recovery through the probate process to determine cost-effectiveness and impact on resources available to pursue recovery of overpaid benefits.
Bankruptcy	It is recommended that SESAs: Develop written guidelines and procedures for the handling of bankruptcy cases. Periodically evaluate recovery of bankruptcy cases to determine cost-effectiveness and impact on resources available to pursue recovery of other overpaid benefits. Periodically review cases to identify potential improvements to collection procedures that may prevent claimants from electing to discharge debts through bankruptcy.