What is a bank account garnishment?
A bank account levy (also referred to as bank account garnishment,) occurs when a creditor is able to take all, or a portion of, the money in a debtor’s bank account for payment of an overdue debt. In most cases, a court order is required for this to occur, but the federal government can issue a bank account levy administratively (without going through a court.) There are numerous specific laws on both the federal and state level that apply to bank account garnishments.
Bank Levy Process
When a bank receives a notice of a levy, they must immediately freeze the debtor’s account. In addition to being unable to make a withdrawal, if your bank account is frozen, any outstanding checks or automatic debit card payments won’t clear (unless there are enough exempt funds in the account) – so be sure to make alternate arrangements.
If this wasn’t done, the garnishee would simply withdraw their money upon receiving notice of the bank account garnishment. For this reason, in most cases, the consumer isn’t given notice of the bank account garnishment until the freezing has already taken place. If you receive this notice, and have any exempt funds in your account (see below,) you should immediately notify your bank of this in writing.
Since it can be very complicated to distinguish exempt and non-exempt funds, and mistakes do get made, if you know that you may be subject to a bank account levy (which usually follows a lawsuit in which you are sued for payment of a debt,) it’s a good idea to go ahead and separate the funds into two different accounts. You should then make the bank aware that one entire account is exempt from any garnishment order that they may receive.
Funds Exempt from Bank Account Garnishment
Some funds are usually exempt from bank account levy. Although laws can vary by state, in general the following funds cannot be taken for purposes of debt collection:
- Social Security, and other government benefit, or payments
- Monies 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
- Some states allow for an additional “wild card” exemption.
When a bank account levy is for overdue child support or delinquent taxes, these exemptions may not apply.
A federal law that went into effect in May of 2011 requires that banks receiving a garnishment order for an account-holder who receives federal benefits, review their deposits for the last two months to determine if any of these funds were deposited, and are thus exempt.
Only in rare cases is a garnishor able to take funds from an account that’s not in the debtor’s name. The law regarding accounts with multiple account holders varies by state. In some states, the amount that can be taken is determined by who made certain deposits, but in other states money held in an account owned by two individuals can’t be taken unless all account holders are responsible for the debt.