If you have debts you cannot pay, a creditor could take money from your bank account in some cases. The action is called a bank account garnishment or levy. The action is similar to garnishing your wages with two significant differences:
- The amount taken from your bank account is a lump sum instead of scheduled payments
- The income limitations that apply to wage garnishments do not apply to money garnished from a bank account
There are some rules about bank account garnishment that can protect you from having your bank account seized by a creditor. This article discusses how creditors garnish a bank account and the exemptions to bank account garnishment.
How Does a Creditor Garnish Your Bank Account?
First, the type of debt is significant. Child support agencies, the Internal Revenue Service, the Department of Education, and some state government agencies do not need court orders to seize money from a bank account. However, most creditors need a court order before they can garnish your bank account.
The first step for a creditor to garnish a bank account is to file a debt collection lawsuit. The creditor must obtain a judgment against you by proving you owe it a debt. Creditors file debt collection lawsuits for medical debts, personal loans, credit card bills, and other general unsecured debts. We have an article to help you learn how to respond to a debt collection lawsuit.
If you do not respond to the lawsuit, the court issues a default judgment. If you respond to the lawsuit, but cannot prove you paid the debt or do not owe the debt, the court issues a judgment for the creditor. Once the creditor has a judgment, it requests a court order to proceed with a bank account garnishment.
When Can a Creditor Seize Funds from a Bank Account?
Some state laws prohibit creditors from levying a bank account. Only the IRS and specific government agencies may freeze a bank account. Therefore, you need to check with a bankruptcy lawyer in your state to determine if a creditor could seize your bank account.
Federal law protects certain benefits and income from being seized, including Social Security and Veteran’s benefits. If the money was deposited into the account within the past two months, it should be safe from being levied by a creditor. Protection of these benefits is automatic. However, deposits more than two months old do not have automatic protection. You will need to fight to get those amounts back if a creditor garnishes your bank account.
Some states also protect specific income deposited into bank accounts, such as workers’ compensation benefits or unemployment income. In addition, some states protect portions of your wages deposited into your account under state law, or protect a specific amount in the account could be protected from levies. But, again, you would need to speak with a bankruptcy attorney to determine what income, if any, your state law protects from bank account levies.
How Will I Know a Creditor Is Seizing My Bank Account?
Typically, the bank freezes your bank account and sends you a notice that it has received an order to turn over the bank account funds to a creditor. You have just a few days to object to the bank account garnishment. You have the burden of proving that federal or state law protects the funds in the account from seizure.
Filing Bankruptcy to Creditors from Taking Funds in a Financial Account
Filing bankruptcy immediately stops a creditor from seizing bank account funds. In some cases, a creditor may need to return funds it seized in the weeks before you filed for bankruptcy protection. If you receive a notice from your bank regarding a bank account levy, contact a bankruptcy lawyer immediately to discuss how bankruptcy can help you.
In addition to stopping a judgment creditor from seizing your bank account, filing bankruptcy can permanently eliminate the debt. You don’t need to worry about the creditor trying to collect the debt in the future. If you cannot pay your debts, filing bankruptcy stops:
- Wage garnishment
- Bank account garnishment
- Debt collection lawsuits
- Debt collector activities
Filing a Chapter 7 bankruptcy case can get rid of unsecured debts in four to six months after filing. However, if the debt is not dischargeable, filing Chapter 7 does not get rid of the debt. You could file a Chapter 13 bankruptcy to repay the debt over a five-year bankruptcy plan.
Contact Ascend Today for More Information
Most of our debt-relief services at Ascend are free of charge. Our only priority is to help you get out of debt using the most effective debt-relief option for your situation.
With our help, you can explore debt management, debt payoff planning, and bankruptcy options for getting out of debt. Call now to speak with a member of our team.