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The Alaska Permanent Fund Dividend in Bankruptcy

Alaskans receive their Permanent Fund Dividend (PFD) each year in early October; it generally amounts to about $1200 per person.  A creditor who holds a civil judgment against an Alaskan can garnish the PFD by serving a writ of attachment on the PFD office sometime before the PFD is paid; the creditor will be entitled to receive 80% of the debtor’s PFD.  Unlike cases involving garnishment of a bank account or wages, there is no provision for the debtor to argue that the 80% of the PFD should be exempted from garnishment.

Bankruptcy generally cancels (“discharges”) the underlying debt, so the creditor is not entitled to recover the PFD after entry of the discharge.  Under the “automatic stay” (Sec. 362 of the Bankruptcy Code) any action to collect on a debt after the case is filed is void.  (In Chapter 13 bankruptcy, the standard Alaska plan requires that the debtor surrender 100% of his PFD to the trustee during the plan period.  It is unlikely that the court would confirm any plan that did not provide this).

What about PFD’s payable in the year of filing?  Most Chapter 7 debtors can exempt their right to receive the coming year’s PFD under the “wildcard” exemption of Sec. 522(f).

First, consider the timing of the events that result in the garnishment.  The debtor incurs a debt; the creditor obtains (after filing suit) a judgment.  Anytime after April 1, the creditor can serve the writ of execution on the PFD office for the coming year’s PFD.  Generally, the PFD office will reject writs served less than 30 days before PFD’s are issued; so the creditor’s deadline for service will be sometime in early September.  If the writ is accepted, and the creditor’s information on the debtor matches (generally the PFD office requires that the creditor provide at least two of the following three: first and last name, middle initial, and social security number), the creditor will receive the 80% provided there is no writ in place with a higher priority.  Writs issued by a state agency (for example, for collection of state student loans, or domestic support), and writs issued for tax claims, will have priority; also, a valid writ served first will be paid before another served later.  The PFD office will send the debtor a check (or direct deposit) for the exempt 20%, and will send the 80% to the court; the court will account for the sum against the debt owed, and send the money to the creditor, usually sometime between late November and January.

Because of the wide reach of the automatic stay, the creditor cannot proceed with any part of the garnishment process after the case is filed.  The PFD office (as well as the creditor and his process server and the court) should be notified of the bankruptcy.  Money otherwise seized or set aside for the creditor will be held, then released to the debtor if the trustee in the case agrees that the money is exempt under bankruptcy law

Sec. 547 of the Code provides that creditors are not entitled to funds seized within 90 days of the filing date (indeed, whether seized or paid voluntarily, they are called “preferences” and generally subject to the bankruptcy trustee’s claim; a debtor can make the claim under Sec. 522(h) if the trustee does not).  So even a bankruptcy filed in January is entitled to recoup PFD money seized the prior October; the money would go to the trustee if not exempt, or to the debtor if it is exempt. In In re Tinkness, 9 Alaska Bankruptcy Reporter 33 (Bankr. D. Alaska 2008), the court rejected the creditor’s claim that the debtor had no interest in the PFD to exempt where the case was filed in March, more than three months after the court had distributed the 80% share to the creditor.  This result was based on the fact that the debtors had pending exemption claims in state court at the time they filed the bankruptcy; current practice does not provide for such claims.

At the Law Offices of H. Frank Cahill, in Anchorage, we represent clients throughout Alaska, including, Wasilla, Dillingham, Palmer, Valley, Kenai, Fairbanks, Kodiak, Seward, Soldotna, Homer, Juneau, Wrangell, Petersburg, Bethel, Nome and Sitka; in Fairbanks-Northstar Borough, North Slope Borough, Northwest Arctic Borough and Bristol Bay Borough; and across the Kenai Peninsula. 

We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.