United States v. Ashcraft: Interpreting Earnings Under the Consumer Credit Protection Act to Include Disability Payments

Jenna R. Hueneger
58 St. Louis U. L.J. Online 31 | PDF

Introduction

Joyce Ashcraft (“Ashcraft”) objected to the garnishment of her disability payments on the basis that such payments were “earnings” within the meaning of the Consumer Credit Protection Act (the “Act”) and, thus, subject to the Act’s limitations on the garnishment of “earnings.”[1] The district court determined that disability payments are not “earnings” under the Act and overruled Ashcraft’s objection to garnishment.[2] On appeal, the Eighth Circuit reversed, holding that such payments are “earnings” under the Act and, as a result, are protected in part against garnishment.[3]

I. Background of the Case

Ashcraft pleaded guilty in 2004 to multiple criminal charges.[4] As part of her sentence, Ashcraft was ordered to pay restitution to her victims.[5] In February 2012, pursuant to the restitution sentence, the government sought to garnish disability payments Ashcraft received in connection with a previous employment.[6] Specifically, prior to her incarceration, Ashcraft had been employed by Amana Refrigeration (“Amana”).[7] As part of her employment with Amana, Ashcraft received long-term disability insurance through Principal Life Insurance Company (“PLIC”).[8] While working for Amana, Ashcraft aggravated a medical condition and was unable to continue performing services for the company.[9] Given her condition, Ashcraft began receiving disability payments from PLIC; she will continue to receive such payments until November 2016.[10]

Ashcraft objected to the government’s garnishment efforts, arguing that her disability payments are “earnings” within the meaning of the Act and, thus, protected by the Act’s limitation on the garnishment of “earnings.”[11] After construing the relevant sections of the Act, the district court determined that “earnings” did not include disability payments.[12] The district court, therefore, held that Ashcraft’s disability payments were not protected by the Act’s limitations on garnishment and denied her objection to garnishment.[13]

Ashcraft appealed the district court’s order, maintaining her argument that, because they were in effect part of her compensation from Amana, her disability payments should be included in the Act’s definition of “earnings.”[14] The government, in arguing to uphold the district court’s determination, contended that the disability payments should not be considered “earnings” because they were not compensation for personal services as required by the Act and because the Act does not expressly include disability payments in its definition of “earnings.”[15]

II. Legal Background

The Act, in relevant part, limits the garnishment of an individual’s “earnings.”[16] Specifically, the Act states: “[T]he maximum part of the aggregate disposable earnings of an individual for any workweek which is subjected to garnishment may not exceed [a certain amount specified by the Act.]”[17] The Act further provides that “[t]he term ‘earnings’ means compensation paid or payable for personal services, whether denominated as wages, salary, commission, bonus, or otherwise, and includes periodic payments pursuant to a pension or retirement program.”[18] Moreover, according to the Act, “[t]he term ‘disposable earnings’ means that part of the earnings of any individual remaining after the deduction from those earnings of any amounts required by law to be withheld.”[19]

Several courts have interpreted the meaning of “earnings” under the Act, but these courts dealt with payments expressly enumerated in the Act and not with the Act’s applicability to disability payments.[20] In fact, not only had the Eighth Circuit never considered whether disability payments are “earnings” within the meaning of the Act, the parties could not even point to any district court or court of appeals case from another circuit that addressed the issue.[21]

Although no case had considered the Act’s applicability to disability payments, two cases did provide a starting point for determining the issue.[22] The U.S. Supreme Court’s decision in Kokoszka v. Belford was particularly relevant, as it discussed both the purpose of the Act as well as its applicability to income tax refunds.[23] In finding that income tax refunds did not constitute “earnings,” the Court concluded that “‘earnings’ did not include every asset that is traceable in some way to such compensation.”[24] Furthermore, the Court determined that, while the Act was intended to prevent individuals from entering bankruptcy, Congress only “sought to regulate garnishment in its usual sense as a levy on periodic payments of compensation needed to support the wage earner and his family on a week-to-week, month-to-month basis.”[25] Moreover, though no district court or court of appeals had addressed the applicability of the Act to disability payments, a bankruptcy court in In re Conway had addressed the issue.[26] The bankruptcy court determined that “[d]isability payments serve the same purpose [as periodic payments pursuant to a pension or retirement plan] and, like retirement or pension payments, are replacement income.”[27] Furthermore, the bankruptcy court analogized the disability insurance plan to a benefit of employment and, thus, concluded that the disability insurance payments were “earnings” under the Act.[28]

III. Analysis

A.            Court’s Analysis

After reviewing the pertinent provisions of the Act and the cases relevant to the discussion, the Eighth Circuit turned to its analysis of the applicability of the Act to Ashcraft’s disability payments.[29] Citing the “plain language” of the Act, the Eighth Circuit concluded that her disability payments were “earnings” within the meaning of the Act.[30] Specifically, the Eighth Circuit emphasized that the Act’s definition of “earnings,” by including the language “whether denominated as,” “prioritizes the character of the payment over its label.”[31]

Moreover, according to the Eighth Circuit, the central issue was not whether the disability payments were wages but whether the disability payments were “compensation paid or payable for personal services.”[32] Pertinent to this determination were the facts that Ashcraft received the payments through her former employer and that the payments were designed to function as wage substitutes.[33] As such, the disability payments were not merely “traceable in some way” to Ashcraft’s compensation[34] “but [we]re themselves a direct component of the compensation Amana provided to Ashcraft in return for the personal services Ashcraft rendered to Amana.”[35] Thus, “[t]hey [we]re ‘compensation paid or payable for personal services’ that [we]re ‘denominated . . . otherwise’ by her former employer as disability payments rather than as wages or salary.”[36]

Furthermore, the Eighth Circuit rejected the government’s argument that the payments were not compensation for personal services because Ashcraft only received them due to the fact that she could no longer perform personal services.[37] In the Eighth Circuit’s opinion, the government’s argument did not focus on the character of the payments but, rather, incorrectly emphasized the timing of the payments.[38] Thus, even though Ashcraft performed the services for Amana before she began receiving her disability payments, the payments were still compensation paid to her for the personal services she rendered in the past.[39]

Therefore, given the character of the disability payments as compensation for the services she performed, the Eighth Circuit concluded that such payments were “earnings” within the plain meaning of the Act and, therefore, protected by the Act’s limitations on garnishment.[40]

B.             Author’s Analysis

The Eighth Circuit, in concluding that Ashcraft’s disability payments constituted “earnings” under the Act, interpreted the definition of “earnings” as being inclusive.[41] Thus, in effect, the Eighth Circuit opened up the door to other kinds of payments being considered “earnings” under the Act. While such an interpretation was fully supported by the Eighth Circuit’s analysis of the plain language of the Act as well as its emphasis on the character of the payments as compensation,[42] the Eighth Circuit’s decision in this case should not be used as a means to protect any type of payment received by way of employment from garnishment. Indeed, future courts faced with construing the Act should be leery of interpreting the Eighth Circuit’s decision in a way that shields payments from garnishment that were never intended to be protected by the Act. As stated by the Supreme Court, and emphasized by the Eighth Circuit in its decision, the purpose of the Act was only to protect from garnishment payments of compensation needed to support the individual and his family.[43] While the Eighth Circuit’s decision in this case furthers such a purpose by protecting the disability payments Ashcraft received from her employer, courts deciding whether to further expand the definition of “earnings” under the Act must be careful to do so only in a way that supports the Act’s purpose.

Conclusion

By characterizing Ashcraft’s disability payments as compensation for personal services, the Eighth Circuit determined that such payments were “earnings” within the meaning of the Act and, therefore, protected against garnishment.[44] In doing so, the Eighth Circuit opened the door to other kinds of payments being considered “earnings” under the Act, which, if carried to its full extent, could shield payments from garnishment that were never intended to be protected by the Act. If future courts stick to the “plain language” analysis employed by the Eighth Circuit, however, only those payments that in character are compensation for services will be subject to the Act’s limitation on garnishment.[45]

Jenna R. Hueneger*



[1] U.S. v. Ashcraft, 732 F.3d 860, 861 (8th Cir. 2013).

[2] Id.

[3] Id.

[4] Id.

[5] Id.

[6] Ashcraft, 732 F.3d at 861–62.

[7] Id. at 861.

[8] Id.

[9] Id.

[10] Id.

[11] Ashcraft, 732 F.3d at 862.

[12] Id.

[13] Id.

[14] See id.

[15] Id.

[16] See Ashcraft, 732 F.3d at 862.

[17] Id. (quoting 15 U.S.C. § 1673). The amount specified by the Act is as follows: “(1) 25 per centum of his disposable earnings for that week, or (2) the amount by which his disposable earnings for that week exceed thirty times the Federal minimum hourly wage . . . in effect at the time the earnings are payable, whichever is less.” Id. at 862–63 (quoting 15 U.S.C. § 1673).

[18] Id. at 862 (quoting 15 U.S.C. § 1672(a)).

[19] Id. (quoting 15 U.S.C. § 1672(b)).

[20] Ashcraft, 732 F.3d at 863. In a footnote, the Eighth Circuit highlighted some of the different district court cases that construed whether certain types of pension-benefit payments constituted “earnings,” but it determined that those cases dealt with a different question than the one presented by Ashcraft because the Act expressly includes payments made pursuant to a pension plan. Id. at n.3.

[21] Id.

[22] Id.

[23] Id.

[24] Ashcraft, 732 F.3d at 863 (quoting Kokoszka v. Belford, 417 U.S. 642, 651 (1974)).

[25] Id. (quoting Kokoszka, 417 U.S. at 651).

[26] Id. at 863–64.

[27] Id. at 864 (quoting In re Conway, No. 03-11200-MAM-7, 2003 Bankr. LEXIS 1988 at *20–22 (Bankr. S.D. Ala. Sept. 9, 2003)).

[28] Id.

[29] Ashcraft, 732 F.3d at 864.

[30] Id.

[31] Id.

[32] Id.

[33] Id.

[34] Ashcraft, 732 F.3d at 864 (quoting Kokoszka v. Belford, 417 U.S. 642, 651 (1974)).

[35] Id.

[36] Id.

[37] Id.

[38] Id.

[39] Ashcraft, 732 F.3d at 864–65.

[40] Id. at 865.

[41] See id. at 862.

[42] Id. at 864–65.

[43] Id. at 863 (quoting Kokoszka v. Belford, 417 U.S. 642, 651 (1974)).

[44] Ashcraft, 732 F.3d at 864–65.

[45] Id.

* J.D. Candidate, 2015, Saint Louis University School of Law. Thank you to the Saint Louis University Law Journal staff for their work in preparing this for online publication.