Account Garnishment
Having debt can be stressful. When you owe money and do not pay, you risk having any money in an account at a bank or credit union automatically withdrawn to pay your debt. This is called bank account garnishment or bank account levy.
Creditors trying to collect commercial debtmust go to court to get an order of bank account garnishment. Commercial debt is anything not owed to the government or for child support or alimony. This type of creditor is often called a judgment creditor. If the court rules in the creditor’s favor, an order of account garnishment is sent directly to your bank or credit union. Judgment creditors often win orders of wage garnishment because people don’t show up to court. When thathappens, the courts generally find for the creditors.
There are no federal limits to the amount that can be taken in account garnishment. Your state may have laws that are more protective.
Some sources of income are considered protected in account garnishment, including:
- Social Security, and other government benefits or payments
- Funds received for child support or alimony (spousal support)
- Workers’ compensation payments
- Retirement funds, such as those from pensions or annuities
- Amounts received as the result of a personal injury lawsuit
- A certain percentage of wages
When a bank account garnishment order is issued for overdue child support or delinquent taxes, these exemptions may not apply. Banks or credit unions that receive garnishment orders must review the deposit records for the two months beforethe order to make sure amounts deposited from protected sources are exempt from account garnishment.
Once a bank or credit union receives an order for account garnishment, you funds are frozen. This means you can’t get them. You cannot use your debit card to purchase groceries. You cannot get money from an ATM. Any checks you have written may bounce or automatic payments made from your checking account may be unpaid. This is done to prevent you from withdrawing all ofyour funds before the creditor can be paid.
If this happens, consider getting legal help. Also, contact anyone you have written a check to or have an automatic payment scheduled with and explain the situation. If you have protected sources of income, be sure to explain this.
What are some ways to avoid account garnishment?
- Pay your debts if you can afford it. Make a plan to reduce your debt.
- If you cannot afford to pay your debt, see if you can set up a payment plan with your creditor. Account garnishment is expensive and time consuming for creditors. By offering to set up a payment plan, you are potentially providing them with a cheaper route to collecting money from you.
- Challenge the garnishment. For judgment creditors, this means going to court when they sue you. For the federal or state government, this means requesting a hearing.
- Do no put money into an account at a bank or credit union.
- See if you can settle your debt. Settling a debt is not without risks. But, again, because wage garnishment is expensive and time consuming, the creditor may accept partial payment. Just remember, you may end up owing income taxes on any part of the debt that is forgiven.
- Consider bankruptcy. If you think this is your best option, consult a lawyer. If you don't make much money,you may be able toget help from a legal aid attorney or an attorney through your community’s pro bono attorney network.
FAQs
If you are facing or even experiencing a garnishment, don't despair – there are solutions. You can stop a garnishment by: Paying off the debt in full. Filing an objection to the garnishment with the court if you have legal basis, such debt was a result of fraud or identity theft.
Is there a way around garnishment? ›
If you are facing or even experiencing a garnishment, don't despair – there are solutions. You can stop a garnishment by: Paying off the debt in full. Filing an objection to the garnishment with the court if you have legal basis, such debt was a result of fraud or identity theft.
Can a creditor take all the money in your bank account? ›
Yes, a debt collector can take money that you owe them directly from your bank account, but they have to win a lawsuit first. This is known as garnishing. The debt collector would warn you before they begin a lawsuit.
What states do not allow bank account garnishment? ›
What States Prohibit Bank Garnishment? Bank garnishment is legal in all 50 states. However, four states prohibit wage garnishment for consumer debts. According to Debt.org, those states are Texas, South Carolina, Pennsylvania, and North Carolina.
How do I protect my bank account from levy? ›
What Is a Bank Levy and How Can I Avoid One?
- Don't Ignore Debt Collectors. ...
- Have Government Assistance Funds Deposited Directly to Your Bank Account. ...
- Maintain Your Social Security Funds at the Same Account. ...
- Know Your State's Exemptions. ...
- To Avoid a Bank Levy, Keep Separate Accounts for Exempt Funds.
If your wages are being garnished, you're not alone. According to a study on wage garnishment in the United States, more than one in every 100 workers was the subject of a wage garnishment in 2019. But you may be able to stop wage garnishment with a debt consolidation loan, if you can qualify for one.
What is the most they can garnish from your paycheck? ›
Federal Wage Garnishment Limits for Judgment Creditors
If a judgment creditor is garnishing your wages, federal law provides that it can take no more than: 25% of your disposable income, or. the amount that your income exceeds 30 times the federal minimum wage, whichever is less.
What bank accounts are protected from creditors? ›
Some sources of income are considered protected in account garnishment, including:
- Social Security, and other government benefits or payments.
- Funds received for child support or alimony (spousal support)
- Workers' compensation payments.
- Retirement funds, such as those from pensions or annuities.
In addition to federally and state-provided assistance, things like child support payments, student loans, workers compensation and pension funds are also exempt. If you have less than two months' worth of certain benefits in your account, these are automatically exempted.
Can debt collectors see your bank account balance? ›
Collection agencies can access your bank account, but only after a court judgment. A judgment, which typically follows a lawsuit, may permit a bank account or wage garnishment, meaning the collector can take money directly out of your account or from your wages to pay off your debt.
If you're looking for a way to open a bank account that no creditor may touch, consider the following options:
- Open a Bank Account to Receive Government Benefits. ...
- Open a Bank Account in a State where Wage Garnishment is Prohibited and Bank Levy Laws are Favourable. ...
- Open a Commercial Bank Account for your LLC.
Once a creditor gets a judgment against you, it can ask the court to issue an order directly to the bank to freeze your bank account through a "writ of garnishment." Another common way for a creditor to freeze your accounts is to ask the court for a "turnover receiver." A receiver is a third-party appointed by the ...
What states are most debtor friendly? ›
Which States Allow Domestic Asset Protection Trusts? Of those states, Alaska, Nevada, Utah, South Dakota and Delaware are generally regarded as having laws that are the most friendly to debtors.
How to stop creditors from taking money from your bank account? ›
Your bank or credit union might use stop payment orders
Some banks or credit unions might recommend you send them a stop payment order, too. A stop payment order is an instruction to your bank or credit union that tells them not to make a payment to a specified company from your account.
Can I open a new bank account if I have a levy? ›
While your levied account is frozen, you can open a new one. Be sure to move any automatic bill payments that you've set up to the new account so that you don't miss any payments and fall deeper into debt.
What is the difference between a bank levy and a garnishment? ›
With a garnishment, your employer sends this portion of your paycheck to the creditor, who then applies to the amount you owe. With a levy, a creditor can take funds from your savings or checking account, which typically means your account is frozen.
Can you negotiate a wage garnishment? ›
Try to negotiate
A wage garnishment judgment can be costly and time-consuming for a creditor to obtain and for you to appeal, so reaching a payment agreement early on, if at all possible, is recommended.
How do I write a letter to stop wage garnishment? ›
At a minimum, your written objection to the garnishment should include the following information:
- the case number and case caption (ex: "XYZ Bank vs. John Doe")
- the date of your objection.
- your name and current contact information.
- the reasons (or "grounds") for your objection, and.
- your signature.
6 Options If Your Wages Are Being Garnished
- Try To Work Something Out With The Creditor. ...
- File a Claim of Exemption. ...
- Challenge the Garnishment. ...
- Consolidate or Refinance Your Debt. ...
- Work with a Credit Counselor to Get on a Payment Plan. ...
- File Bankruptcy.
Programs like Social Security (Retirement, Survivor or Disability Insurance) and Veterans Benefits are also exempt from garnishment. This money is automatically protected when you have less than 2 months of benefits in your account.
