Legal Question in Credit and Debt Law in Colorado

Can they garnish student Financial Aid?

I have financial aid though my school. It is my understanding that it is to be used for tuition and living expences ONLY!

I deposited the remainder balance that was given to me from my school into my bank account and half of it is frozen because of garnishment.

I have been paying this lawfirm every month on time. I did not recive notice that this would happen, or a judge ordered it to happen. The money is a loan from the government so it isnt technically theirs to take is it?

Asked on 8/17/04, 1:36 am

1 Answer from Attorneys

Roger Johnson Roger D. Johnson, P.C.

Re: Can they garnish student Financial Aid?

Your inquiry raises several issues.

In Schaerrer v Westman Commission Company, 769 P.2d 1058 [Colo. 2/27/1989], the Colorado Supreme Court held that federally guaranteed student loan [GSL] funds are exempt from garnishment initiated for the purpose to collect an antecedent business debt.

The facts of Schaerrer involved a federally guaranteed loan. For purposes of this response, I assume that the financial aid you refer to is a federally guaranteed loan, and thus, that the Schaerrer analysis would control.

In Schaerrer, the GSL proceeds were deposited in an account and thereby commingled with other funds which were clearly exempt from garnishment.

Your inquiry does not state if the account that was garnished contained non-exempt funds, ie, earnings, gifts, proceeds from the sale of non-exempt assets, etc. If the GSL funds were commingled with funds which are clearly non-exempt, Schaerrer may not apply and control the disposition of your case.

Although not stated in your inquiry, I infer a judgment was entered against you. I assume the judgment was entered on a debt you owed which did not involve funds used for educational purposes. If this assumption is inaccurate, then Schaerrer may not apply to your case.

Your inquiry does not specify if the payments you are making are being made pursuant to a stipulation wherein the creditor agreed to forgo collection [garnishment] procedures for so long as you are not in default on the payments. If this is the case, the garnishment likely constitutes a breach of the stipulation by the creditor, and a release of the garnishment can likely be obtained on that basis.

You state you never received notice of the writ of garnishment. If a writ of garnishment was not properly served in accordance with the rules of civil procedure, the garnishment is probably invalid and will be released.

It sounds like you may have grounds to obtain a release of the garnishment, BUT you need to pursue your remedies quickly, including filing a answer to the writ. The office of the clerk of the court can give you information on the status [dates of filings and dates of responses permitted] of your case, but cannot give you legal advice. I would encourage you to act promptly if you think you have grounds to obtain a release of the garnishment.

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Answered on 8/17/04, 1:37 pm

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