GOBankingRates

How a Creditor’s Bank Levy Could Bankrupt You

bank account garnishment

Failing to repay your debt could land you in court if your creditors decide to pursue a civil claim against you; or they could take additional legal action to garnish your wages or enact a bank account levy.

A bank account garnishment can lead to even more money woes if you don’t have enough cash to cover your bills.

Bank Account Garnishment Laws: How a Bank Levy Works

The rules for enforcing a bank account garnishment vary from state to state but the process typically works the same way. After a judgment is entered against you, the creditor has to file a separate document to initiate a bank account levy.

The document, which might be called a writ of garnishment or writ of execution, must include your contact information, the name and address of your bank and the amount that’s to be garnished. The creditor is responsible for giving law enforcement a copy of the writ so it can be served to your bank.

Once the bank receives the garnishment order, it’s required to freeze your bank account up to the amount specified by the court. This means that if you owe $5,000 but your account only has $2,000 in it, all of your cash can be frozen.

You then have a specific amount of time to challenge the bank levy or claim exemptions for certain assets. If you fail to respond to the bank account garnishment order or you don’t have any bank levy exemptions to claim, the bank will turn over the funds in your account once the waiting period ends. Accounts that don’t have enough money to cover the full amount of the garnishment might suffer another writ by the creditor for the remaining balance later on.

Claiming Bank Levy Exemptions

Certain deposits are exempt from bank account garnishment under federal law. According to the Federal Trade Commission, bank garnishment exemptions include Social Securitybenefits, Supplemental Security Income benefits, veterans’ benefits, federal retirement and disability benefits, federal student aid, railroad retirement benefits and federal disaster relief benefits.

If your bank account contains any of these types of benefits, claim bank levy exemptions with the court that issued the garnishment order. Generally, you’ll need to provide a check stub or bank statement to prove your claim.

In addition to federal bank levy exemptions, each state also protects certain types of income from creditors. Depending on where you live, you might be able to exempt workers’ compensation benefits, unemployment benefits, and any child support or alimony payments you receive. You might also be able to claim a hardship exemption if you can prove that the garnishment would put you and your family in dire financial straits.

Reversing a Bank Account Levy

If you’ve been served with a bank account levy notice, you might be able to get the order reversed if certain circumstances apply.

For example, you can file a motion with the court to vacate the judgment if you can prove that you were never properly served with notice of the original lawsuit. You might also be able to get the judgment vacated if you were aware of the court date, but circumstances beyond your control prevented you from appearing.

Try contesting the judgment if you believe the debt is outside the statute of limitations. Each state sets a specific time frame on how long a creditor has to sue you for a debt. If the statute of limitations has already expired, you still owe the debt but the creditor can no longer take any legal action against you to collect.

Don’t have grounds for reversing the bank levy? You can still attempt to negotiate a settlement with your creditor before the bank account garnishment is executed. As a final option, filing bankruptcy will halt any court proceedings, including a levy.

Bank Account Garnishment of Joint Accounts

If you think your joint account is safe from bank account garnishment, you could be in for a nasty surprise. A creditor can garnish a joint account, regardless of whether both account owners actually owe the debt.

It’s up to the non-debtor account owner to prove what portion of the money belongs to him or to claim any applicable exemptions. Accounts belonging only to one spouse are generally protected, although community property states, such as Texas, allow an exception for certain types of debt. If you’re concerned about a possible bank levy garnishment of a joint account, it might be wise for you and your spouse to establish separate bank accounts.

A bank levy can wreak havoc on your finances and create unnecessary stress for you and your family. Defend yourself from this creditor attack by enacting the right exemptions to help minimize the damage.

This article was written by Rebecca Lake of CanDoFinance.com.

Share This Article

  • Jaime

    To have this happen would be horrible:(

  • queen

    what if you write a balance check to cover the lien on your account and take the cash out

    • Gina Respert-Elrod

      You didn’t give much more information, but from what I gather, what you are talking about is called “kiting.” This IS a federal offense, don’t do it. I used to work for a bank, and we were trained to notice this type of transactions a fraud.

  • crying

    my husbands VA disability check was just transfered when the levy went into effect.
    I need help. I thought VA disability checks and SS checks were exempt.

    • http://www.facebook.com/leslie.martin.900388 Leslie Martin

      they did it to me too and noooo they are not suppose to.its fixable but what a hassle that should of never been?

    • Martha

      What bank? TDBank does not follow the law. They claim to abide by federal law, however, any additional state laws that do not counter (opposite to) federal law are also enforceable. Generally, child support is covered as an exemption to levy by state laws.TDBank will take a levy fee of $125 every time they look at your account to satisfy the Writ, however, they take the fee even when there is no money to satisfy the creditors levy, thus making themselves the only party benefiting from the levy. This is illegal. Unfortunately, banks apparently seldom get reprimand for this practice. See if your area has legal aide or if you can file an order to NOTICE AND DEMAND FOR RESTORATION OF ACCOUNT

  • Richard Ramey

    Nobody ever mentions taking your money out of the bank before they raid it and putting it in a safe in your home, then filing bankruptcy later

    • Joe WallStreet

      Or plunking some of it in pre-paid credit cards.

    • Barbi

      I asked my bank if I can withdrawal it and they told me know since they have an order to freeze account for garnishment until court in September.

  • messed up

    my father is being sued by a rental company. They have frozen one of my accounts that his name was also on. He was sent a letter by this bank concerning some his personal accounts, but I was never received any notice. Well they froze my account. This account was only used for my unemployment benefits direct deposit. It sounds like I can get this money back. What steps would I have to take to do this?

  • Barbi

    Ok, I lost my job in 2010 cuz the economy shut the doors. Since then I had a bad surgery and I had put it on a credit card to pay for it. Now they put a freeze on my bank account, but I am not working and the only money that I had in there was from my student loan, which can be proved. I tried to pay my bill and it was declined. Can someone help me here? It was only $538 and it is all I have from my school money, since I can’t work due to having very sick boys :( I’m lost anyone know what I can do to get my account unfroze and fast?

  • nelly

    what if your name is added to a non-profit organizations checking account as an authorize user of the debit card and a signature on checks written?

  • guest

    i have no worked since may due to a spinal cord injury called my debt collector and my workmanscomp checks are being levied. i went to the grocery store and my bank card was lack of funds then i recieved a letter my account has a levy on it.now no food no money.i am going to file bankruptcy as i can not work but without a job on workmans comp can i? i am getting hungry waiting on my next check that i will cash at walmart because the bank would take that check from me,right?

  • guest

    go to legal aide to file chapter 13 bankruptcy( not! chapter7) that will unfreeze your bank account account. my all my workmans comp checks were taken.and told the collector i was n workmans comp took a judgement out after i told them and put the levy. you have 21 days act fast or the money is gone.

  • Stephanie Ramirez

    the franchise tax board levied my bank account for restitution I owed for when I went to prison…. the money I had in the bank was my financial aid money so now I have no money for gas to get to school and that is my only source of money… does anyone know if they can touch my financial aid money?

  • so upset

    TD Bank not only froze my account for a levy and charged me $125 fee but they also told me they put a hold for double the amount of the levy because that is their policy. How can they do that????

  • Freebird

    Why are all of the articles on Garnishment/Levy written to ‘protect’ the debtor? The debtor signed the contracts that gave them the loan or the merchandise, etc. but when they choose not to pay for these things they are given advise on how to get out of it and make the creditor look lilke the bad guy….why is that? I am a Judgment Creditor and I am owed over $100,000 by my ‘ex’ because he decided he just didn’t want to pay alimony any more (after leaving me, his family, his pets, and our 23 year ‘life’ behind so that he could marry a woman 20 years younger than me and start a new family which includes IVF twins, at 50 years old!!!). So I have sued him and he is now in Contempt of Court and I have just recently garnished his bank account for the $47,000 he had in it. It’s a shame that the debtors are made to look like these poor, innocent people who are getting side-swiped by the creditors when in reality they are the ones that have done wrong and have been hiding from their responsibilities!!!

    • kitty

      Because un forseen things happen in life that changes a person’s situation. It then becomes more important to survive rather than becoming homeless or going hungry. Debtors should be protected, they are the ones who feel the downturn much more than the big businesses.

      • kitty

        This is true in many business debts, but personal debts and domestic issues all have different circumstances. If a parent isn’t supporting their child then there must be something worked out where they can pay something each month depending on their income.

  • Do unto others

    Wells Fargo is notorious for just allowing anyone to send in a letter saying, “take money from this person’s account.” This has happened to me twice and in both instances I was never contacted by any court nor did I receive any phone calls or letters. It would have been nice for the person who spent all their time tracking me down to at least call and ask if I could pay it or if I could make a partial payment. I would have been more than happy. The first time this happened it was from a scam artist for magazines saying I owed them from they year 2006! I didn’t know anything about this until 2013. I opened up a Wells Fargo account last year as a backup to another account. Why is Wells FArgo the only account that these levies keep coming from is beyond me. Protect yourselves and make sure to research and ask questions. Many times these corporate types figure the common man/woman to be idiots.

  • Luanne

    This is good info. Thank You ! Bank of America charged me $100.00 to process a levy against me. This charge caused my checking account to become overdrawn. Then they charged me an additional $35.00 overdraft fee. Can I also challenge these bank fees?