Garnishment or Seizure of Bank Accounts by Creditors

Almost everyone has heard of the IRS freezing accounts and taking assets to satisfy old tax bills. Even though they don’t have quite the same extent of power, many state laws do authorize private sector creditors to seize money from a consumer’s bank account after they have complied with certain procedures. This debt collection technique is called garnishment.

Creditor Judgments

Before a creditor can garnish your bank accounts, they must establish that there is a valid debt and then procure a judgment against you. Many people get judgments because they fail to respond to a notice of the lawsuit at all. The thought process includes: “It’s going to happen anyway, so why do anything to stop it?” You always want to respond even if the debt allegation is true. If you do not respond, the amount of the debt can be increased by fees and interest which will further increase the amount of the debt. If you respond, you may be able to negotiate a payment plan, without a judgment being entered against you. If a judgment is entered, you can also try to minimize the number of tacked-on fees and expenses.

How Garnishment Works

Once a judgment is entered against you by a creditor, they can then petition the court to garnish your wages or bank account and have those funds turned over to them to satisfy the judgment. Some states do not permit garnishment for consumer debts, like credit card accounts. For those that do, here is a brief overview of how garnishment works:

First, a creditor takes you to court, wins, and gets a judgment entered against you. A judgment is a court order that says you do owe a specified amount to the creditor and they are entitled to recover that amount.

Second, if you still fail to pay the amount the court ordered you to pay, the creditor can then ask the court to issue what is called a writ of garnishment (or your state’s equivalent). After a writ of garnishment is issued, they then serve it on someone who owes you money (such as an employer) or is holding money for you (such as a bank). A writ of garnishment will usually provide directions on how a third party is to withhold money and who is to receive the seized funds. For example, your bank is served with a writ of garnishment for a $1000 judgment, but you only have $500 in your bank account. The writ will tell the bank how much of the $500 they are to withdraw from your account. The writ will also instruct the bank on whether to send the funds directly to the creditor or to the registry of the court.

Third, after receiving payment, the court turns the money over to the creditor who holds the judgment. The garnishment process costs a small fee (around $20 in most states), plus the costs of serving the papers. These fees are frequently added to the total amount of the debt.

Limitations on Garnishment

States that authorize garnishment will place limitations on what and how much can be garnished. Typically, only disposable earnings can be seized. This means that some assets are exempt from collection, such as Social Security benefits or child support payments. However, while a creditor cannot garnish a Social Security check, if the check is directly deposited into a checking account, a creditor can then use the funds to satisfy their judgment. To do this an account will be “frozen.” This means, the debtor cannot withdraw any money from the account. After a set period of time, typically 60-90 days, the money is paid to the creditor. If an exempt asset is frozen, you may file an objection with the court during the waiting period and claim your exempt funds. All remaining, non-exempt funds will be paid over to your creditor.

Additional exceptions or exemptions may apply to your situation based on your state’s laws. When you receive notice of a garnishment action, consult with an attorney who specializes in consumer or debt collection laws to learn how these exceptions work. Continuing to ignore the debt obligation will only cause more damage to your credit rating and your bank balance.