Sunday, December 06, 2009

Nebraska Supreme Court reverses District Court ruling in favor of Bankruptcy Chapter 7 trustee that had garnished a contractors bank account. Although judgment debtor had an account balance when the judgment creditor filed its garnishment, the judgment debtor already was in default to the Bank who had a perfected lien on its accounts. Myers v. Christensen, S-08-1212, 278 Neb. 989 The trustee is the judgment creditor, or garnishor; Gencon is the judgment debtor; and Charter West is the garnishee. The case turns on the question of whether, on the date the garnishment summons was served, Gencon had a right to the deposit account which was superior to that of Charter West. Only if that were so could Charter West have been “indebted to” or holding “property or credits of” Gencon within the meaning of the garnishment statutes and therefore liable as a garnishee § 25-1030.02. Due to the existence of Charter West’s perfected security interest, Gencon had no enforceable right to the proceeds of the deposit account on the date that the garnishment summons was served and therefore, the trustee could have no such right. In other words, the trustee could not acquire a claim by garnishment which was superior to the claim of Charter West arising from its perfected security interest. Because of Bank's perfected security interest in the deposit account, which was far exceeded by the amount of Gencon’s indebtedness then in default, Charter West was not “indebted to” or holding “property or credits of” Gencon at the time of service of the garnishment summons.

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