Once a judgment is entered, a plaintiff/judgment creditor can use an array of legal tools to try and collect the money owed from the defendant/judgment debtor. One such tool is a restraining notice.
A restraining notice requires a person or entity to refrain from paying the debtor any money that they owe to the debtor, or to transfer any assets that they are holding on behalf of the debtor, up to double the amount of the judgment.
Restraining notices are typically served on people and entities that the creditor believes owe money to the debtor or are in possession of money or assets belonging to the debtor. A common example is the debtor’s bank, which holds the debtor’s money in checking or savings accounts or personal property in a safe deposit box. If the debtor is a business, restraining notices can be served on customers or clients of the debtor, which would prohibit the customers or clients from paying the debtor money they owe for goods purchased from or services rendered by the debtor.
What are your obligations under a restraining notice?
If you, as a third party, are served with a restraining notice, you have certain obligations under New York law.
Say you are a client of Joe Smith, and you currently owe him $30,000. You are served with a restraining notice from a creditor who has a $70,000 judgment against Joe Smith. You are required to hold onto the full $30,000 that you owe Joe Smith. If you pay him, or if you use that money to pay someone else, the creditor can come after you for any of that money you pay or transfer after you received the restraining notice. In addition, you can be found to be in contempt of court for violating the restraining notice and ordered to pay fines or other forms of relief.
Let’s reverse the figures. Say the judgment against Joe Smith is for $30,000, and you owe Joe Smith $70,000. You receive a restraining notice, and since the notice requires that you refrain from distributing up to twice the amount of the judgment, you are obligated to hold $60,000 of Joe Smith’s money.
It should be noted that the first $3,000 in a debtor’s bank account is exempt from restraint in New York, which means the bank must make funds up to this amount available to the debtor. If the debtor’s bank account balance is less than $3,000 at the time the restraining notice is served on the bank, the restraining notice will not take effect and the bank account will remain unfrozen.
What if I don’t owe the debtor money at the time I receive the restraining notice?
If you don’t owe any money to the debtor at the time the restraining notice is served, then the restraining notice is not effective and you don’t need to hold any money.
Let’s say you borrowed $20,000 from Joe Smith, but the loan isn’t due to be repaid for 2 years. If you are served with a restraining notice today, you will have no obligation to hold that money, since the loan isn’t yet due. Technically, you do not owe Joe Smith the money right now; therefore, the restraining notice does not have any effect. This issue comes up frequently with landlords, to whom rent is typically owed on a monthly basis. If the debtor is a landlord, but all of the tenants are up to date on their rent, then restraining notices served on the tenants will not be effective since the tenants would not owe any money to the landlord at the time the restraining notices were served.
For how long are restraining notices valid?
A restraining notice served on third parties is effective for up to one year after the date on the notice. As long as you owe money to the debtor at the time of the notice, you must hold that money, up to double the amount of the judgment, until the notice expires, the judgment is satisfied or vacated, the creditor withdraws the restraining notice, or a court order directs you to turn the money over to the creditor. If any additional money or assets belonging to the debtor come into your possession while the restraining notice is still in effect, the restraining notice will apply to those additional monies or assets as well.
During the one-year effective period, the creditor may obtain a court order requiring third parties to distribute the debtor’s assets to the creditor, or the creditor may submit a property execution to the sheriff or marshal, who may take funds directly from the debtor’s financial accounts to be distributed to the creditor. As a third-party recipient of a restraining notice, you are obligated to cooperate with these proceedings if they occur while the restraining notice remains in effect.
With vast experience in judgment enforcement matters, the attorneys at Katz Melinger PLLC represent individuals and businesses in state and federal courts throughout New York. Contact Katz Melinger PLLC at 212-460-0047 or online.