What Bank Accounts Cannot Be Garnished?

Bank account garnishment means that a debt collector has successfully sued to have money taken out of your bank account. This happens if you haven’t repaid debts such as a medical bill or unpaid taxes. Your bank isn’t required to notify you of an account garnishment unless the withdrawal overdraws your balance. Depending on where you live, you may have certain rights and protections against having your bank account garnished. Bank account garnishment means that a collection agency is legally allowed to remove money from your account to repay an outstanding debt, and is usually a last resort that creditors turn to when debtors repeatedly ignore requests to pay back what they owe. Loan companies won’t take the costly legal steps required to garnish a debtor’s bank account unless their mailed notices and phone calls have failed to settle the debt. According to the law, a creditor needs to win a judgment in order to garnish your account. In other words, the lender must file a lawsuit, which requires an attorney to deliver notice to both the borrower and the court. To begin withdrawing funds from a debtor’s account, the creditor needs an order or writ of garnishment, signed by a court official. The Internal Revenue Service (IRS) is the only creditor that can garnish money from bank accounts without a judgment. Having your bank account garnished is different from having your wages garnished. A court-ordered wage garnishment requires your employer to withhold a certain amount of your paycheck and send it to your creditor. Since the deduction takes place before your paycheck is cashed, this means that your bank plays no role in a wage garnishment. In rare cases, it’s possible for creditors to garnish both your wages and your bank account at the same time.

Bank Accounts That Cannot Be Garnished or Frozen

If an individual fails to pay back a loan or another extension of credit, then creditors may try to take back the debt forcibly. Creditors have a number of legal means of doing this. Among them is the garnishment of the individual’s wages and the freezing and seizure of his bank account. However, in some cases, money deposited in a bank account cannot be taken by legal force.

Garnishment Versus Freezing a Bank Account

Garnishment is when an individual has some of his wages or other form of income seized before they can be given to him. This is done after the creditor has been awarded damages in a civil court and presented the debtor’s employer or other provider of income with a order of garnishment. The employer then stops the amount due to the creditor from each monthly wage check. An account is frozen in much the same way. Now, it’s the individual’s bank that is presented with an order to freeze the account and, sometimes, to let the creditor take out funds.

Debtor Must Pass a Means Test

Some bank accounts cannot be frozen, nor can some individuals have their wages garnished. In many states, to have a person’s wages garnished or to have his account frozen, the individual must first pass a means test. This will measure the size of the person’s income and assets. If the person does not make enough relative to his expenses, particular those related to the care of dependents, he may not be subject to garnishment or account freezing. Means tests vary by state. The court will apply the relevant means test before it makes an order for garnishment.
Certain Assets are Exempt
Certain types of income cannot be garnished or frozen in a bank account. Foremost among these are federal and state benefits, such as Social Security payments. Not only is a creditor forbidden from taking this money through garnishment, but, after it has been deposited in an account, a creditor cannot freeze it. If he does, the debtor can have the freeze order reversed by explaining to a judge that the frozen funds are derived from federal benefits. A bank is only obligated to comply with a freeze order if the judge who orders the freeze has legal jurisdiction over the banks actions. Once a garnishment is approved in court, the creditor will notify you before contacting your bank to begin the actual garnishment. However, the bank itself has no legal obligation to inform you when money is withdrawn due to an account garnishment. However, you may receive an automated overdraft notification if the garnished amount is greater than your available account balance. The notification of garnishment should come from your creditor and not your bank. After your bank is notified, it will need to follow the court order before honoring any other transactions you have scheduled. Federal law states that individuals who receive federal benefits will have their last two months’ worth of deposits reviewed to see which ones are exempt. If you believe that your bank account may be garnished, notify your bank of these transactions to ensure those funds are properly exempted. When a creditor garnishes your bank account, money that isn’t exempt from garnishment will be frozen and seized. Some banks may also charge non-sufficient fund (NSF) fees if the creditor attempts to withdraw more money than you have. Even if you have overdraft protection, the bank may be legally obligated to fulfill the transaction until the garnishment is satisfied. Some banks also charge a separate additional garnishment. Depending on where you live, account garnishment doesn’t necessarily mean the loss of your entire balance. State laws on bank garnishment vary, but most states impose a garnishment limit based on a percentage of your disposable income. This ensures that debtors will keep enough money to meet their living expenses. Certain types of income are specifically protected against garnishment. For example, direct deposits from federal benefits such as Social Security are protected to some degree in every state.

What Can You Do When Your Account is Garnished?

To lift the garnishment, you can try to contact the collection agency to negotiate alternative payment options. You may be able to lower interest payments, reduce the amount you owe, or make partial payments for a certain amount of time. However, you’ll have more bargaining power if you reach out to your creditor before a judgment is made. It’s in your best interest to prevent an account garnishment from happening in the first place. You can challenge the judgment in cases where the garnishment is made in error, is improperly executed, or presents a serious financial threat to you. If you decide to challenge the garnishment, seek help from an attorney and act quickly since you may only have up to five business days. If you can’t afford an attorney, search for legal aid offices that offer services for free or at a reduced rate. Filing for bankruptcy can stop a garnishment, but this should be considered as a last resort. When you declare bankruptcy, an injunction goes into effect that stops most collectors from calling, sending letters, or filing lawsuits and garnishments. The creditor filing the suit against you can ask the court to lift the injunction, but only under very special circumstances, but this doesn’t mean discharging your debt. You may still owe money after a bankruptcy.
Avoiding Frozen Bank Accounts
Take these steps so that a creditor can’t levy your bank account (freeze the funds). If you have past due debts, your creditors might take steps to collect directly from your bank by freezing your bank accounts also called a bank account levy. Even if you’re able to remove the bank account levy, you will probably still suffer negative consequences. While your bank account funds are frozen:
• you won’t have access to the money, and
• checks that you wrote before your funds were frozen, will not clear.
There are steps that you can take to avoid having your bank accounts frozen, or to make it easier to have the funds released if they are frozen.

Here are some ways to avoid the freezing of your bank account funds:
Don’t Ignore Debt Collectors
If you want to avoid having a creditor levy your bank accounts, you need to pay your debts. If you have a debt that you don’t have enough money to pay, set up a payment plan to give yourself more time to pay. Most state and federal taxing authorities will work with you on this, as will many creditors. While most creditors will need to get a judgment against you before they can have your accounts frozen, there are some that do not. These include government agencies that collect federal and state taxes as well as child support and student loans.
Have Government Assistance Funds Direct Deposited
If an attachment order or garnishment is received by a bank, it must review the account to determine if direct deposits into the accounts include certain government assistance income, such as Social Security and veteran’s benefits. Other benefits covered by this rule include:
• Supplemental Security Income
• federal railroad retirement, unemployment and sickness
• Civil Service Retirement System, and
• Federal Employee Retirement System.
If direct deposits are made, the bank is prohibited from freezing the last two months of the government assistance deposits. This rule does not apply to funds deposited by check. If you receive the same assistance in the form of a check which you then deposit into the account, the account can be frozen, until you claim and prove your right to have the funds released.
Don’t Transfer Your Social Security Funds to Different Accounts
There are special protections for Social Security income, especially if you have the money direct deposited into your account, but even if you do not. Social Security funds retain their protections even after they are received. However, the burden is on you to prove the source of the funds. If you move your Social Security income to different accounts after you receive it or mix it with other money, it might be more difficult to prove that the source of the deposits was Social Security income.

Know Your State’s Exemptions and Use Non-Exempt Funds

Each state’s law provide for certain property or income which can’t be taken by creditors to satisfy unpaid debts. You should become familiar with the exemptions in your state so that you can protect your property before you have a problem and make sure that you use your non-exempt or unprotected deposits to pay bills before you deplete the deposits that are protected. If you keep a separate account for funds which you know qualify for a specific exemption from attachment, if an attachment occurs, it might be easier and quicker to have the account released to you if you can show that the account only contains funds which qualify for an exemption. If the funds are commingled or mixed with money that is not exempt, you will have to trace the deposits to prove to the court that the balance which was actually frozen came from the exempt funds. This is more complex and will take more time. If you owe money to the bank that holds your savings or checking accounts and you fall behind on your payments, the bank has the right to set off the funds in your account against the debt. As long as you owe the money to the same bank that holds your accounts, it does not need to get a judgment or court order to do this. It’s generally a good idea to keep your deposit accounts in a bank that you do not have a lending relationship with. While it is common to maintain your business bank accounts at a bank which provides you with business loans or lines of credit, you do not need to keep your personal accounts there. This way, if the business fails, you are less likely to have your personal funds taken to satisfy personal guarantees you might have given on the business loans.
If you’re wondering how to protect your bank account, chances are a decision has made against you by a creditor. If a creditor obtains a judgment against you, they can garnish your bank account. That means they have obtained the right to dip into your savings and retrieve any money that’s owed them. It’s possible to wake up one day with your bank account completely cleaned out. Suddenly, you and your family are living check to check, trying to figure out what your next move will be. Luckily, a little bit of planning can help you protect yourself. When a creditor garnishes your bank account, they are required to inform you that a judgment has been made against you. They don’t always, and we’ll get to that in a bit. Once you know the judgment has been made against you, you can move to protect your money. Firstly, when the creditor serves you with a garnishment summons, you receive a form that has three checkboxes. One of those is “objection”. This must be filed within 3 days of the receipt of the summons. In some instances, the monies that the creditor wants to garnish cannot be garnished by law. Those include:
• Social Security or disability benefits
• Unemployment benefits
• Money from an injury lawsuit
• Veterans benefits
• Retirement accounts
• Child support payments
• Workers’ comp payments
• Life insurance payments
In addition, money that is held in an account that does not actually belong to you cannot be levied. For instance, if you’ve opened an account for a child who is using the account to deposit money, then you can provide the child’s paystubs at the hearing.