Bose McKinney and Evans, LLP, Blog

The Court of Appeals reversed the trial court and held that student loan funds that are deposited into a personal bank account are exempt from being attached by a judgment creditor.

Nikki Brindle and Patrick J. Arata entered into an agreed judgment whereby Brindle would pay Arata for legal services provided. Arata initiated proceedings to seek funds from Brindle’s bank account at National City Bank, at which time contained $3,367.01. A week later, Brindle filed an exemption claim and requested a hearing. At the hearing, Brindle introduced a voucher from the Academy of Art University stating that she would receive a check in the amount of $3,268.00 which was the amount left over after her tuition was paid to the university. The trial court denied Brindle’s exemption claim and ordered all funds except $300.00 to be transferred. The court stated the funds lost their exempt status when they were deposited into her bank account. Brindle appealed.

In Nikki Brindle v. Patrick J. Arata, No. 02A05-1004-SC-239, the Court of Appeals held that under U.S.C. Title 20 section 1095a, regarding wage garnishments, the plain language of the statute was clear that student loan funds and property traceable to those funds were exempt from garnishment or attachment. Furthermore, because there were no provisions to terminate this status, a contrary decision would render section 1095a meaningless, which the Court doubted was Congress’ intent. It stated that almost every recipient of student funds deposits their funds into a personal bank account and that it “could not imagine that Congress wishes those who receive student loans to stuff their mattresses with their rent money to prevent judgment creditors from attaching it.” Additionally, it distinguished the garnishment of retirement funds after they were deposited from the garnishment of student loan funds. The federal statutes are only extended to protect from the collection of student loans. The Court stated that "not being able to give something away is quite different from having it protected from being taken away." Retirement fund statutes do not apply to student loans. Therefore, the trial court’s holding was erroneous because the student loan funds that Brindle deposited into her bank account were protected, and Arata was prohibited from attachment. Trial court’s holding is reversed.