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 When you owe money and do not pay, you risk having any money in an account at a bank or credit union automatically withdrawn to pay your debt.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 debt must 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 that happens, 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 before the 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 of your 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 to get help from a legal aid attorney or an attorney through your community’s pro bono attorney network.