Glossary
Garnishment of Receivables
Garnishment is a court process in which a judgment creditor directs a third party that owes money to the debtor, such as a customer or bank, to pay that money to the creditor instead.
Most people associate garnishment with wages, but in business-to-business collections the more useful target is often the debtor's own receivables. A business that cannot pay its suppliers may still have customers who owe it money. Garnishment allows a creditor holding a judgment to serve a writ on one of those customers, called the garnishee, ordering it to hold what it owes the debtor and answer under oath about the amount. The court can then order the garnishee to pay those funds to the creditor.
Procedures vary by state, including the name of the writ, how it is served, how long the garnishee has to answer, and whether the writ reaches only money owed at the time of service or continues for future amounts. A garnishee that ignores a properly served writ may become liable itself in many states. Wage garnishment comes up in commercial cases mainly when the judgment is against an individual, such as a personal guarantor. In that case, federal law limits how much of a person's earnings can be garnished, and many states set lower limits or broader exemptions.
Here is a fictional example. A steel distributor, Bridgeport Metals, holds a $47,000 judgment against a fabrication shop. A debtor examination reveals that the shop has an open $30,000 invoice due from a general contractor for a recently completed project. Bridgeport serves a writ of garnishment on the contractor. The contractor answers that it owes $30,000 to the fabrication shop, and the court orders the funds paid to Bridgeport instead.
Garnishment of receivables matters to a creditor because it reaches money that is already on its way to the debtor, often from a solvent and cooperative third party. It works best when the creditor knows who the debtor's customers are and roughly when they pay, information that often comes from post-judgment discovery.
Example
Bridgeport Metals serves a writ of garnishment on a contractor that owes its judgment debtor $30,000. The court orders the contractor to pay that sum to Bridgeport.