Creditor’s Good Faith Saves It From Damage Claims

Creditors recently won a protection from debtors while investigating potentially exempt assets. Under both state and federal law, debtors are entitled to assert certain claims that assets may be exempt from seizure by creditors. However, many debtors do not act quickly to supply the required information to support the claim. Is the creditor at risk during this period of claims for damages? A recent case decided that there was a safe haven for the creditor while it investigated the claims in good faith.

A decision in July from Illinois’ 2nd Circuit Appellate Court provides some protection to judgment creditors when acting on possible exempt assets in citation proceedings. In PNC Bank, N.A. vs Hoffmann 2015 IL App (2d) 141172 (July 8, 2015), PNC Bank, N.A. (“PNC”) had obtained a judgment against Camille Hoffmann (“Hoffmann”) based on her guaranty of a loan. Later PNC commenced post-judgment citation proceedings against Hoffmann and several parties seeking to locate assets. Hoffmann had an IRA at a third party. In court, Hoffmann asserted that the IRA was an exempt asset, but failed to produce evidence of the basis for the claim at that time. Subsequently, Hoffmann produced evidence sufficient to show that the IRA was indeed an exempt asset under Illinois law at which time the IRA was released from the creditor’s claim.

Subsequently, Hoffmann sought damages under Illinois statutes seeking double damages for “seizing” the IRA. The trial court denied the motion finding that there was no taking by PNC and that as long as a party has a good faith basis, that party should have a right to investigate and respond to the debtor’s exemption motion. Hoffmann appealed. The appellate court affirmed the trial court and found that a limited “safe haven” for creditors exists. First, the appellate court held that PNC did not seize the IRA as it did not take actual possession of the IRA. The appellate court further held that even if PNC had seized a possibly exempt asset, that as long as the judgment creditor was investigating the status of the asset in good faith, the creditor was protected against a claim for damages. Here, Hoffmann failed to produce any records supporting its claim of exemption at the time of the first hearing. The court held that the burden of proof of an exemption claim fell on the claimant. The appellate court further reasoned that no damages were due as PNC released the IRA from the citation proceedings once PNC had completed its good faith investigation and determined that it was exempt.

This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.

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