How a Creditor’s Bank Levy Could Bankrupt You

Posted in Banking • June 13, 2014

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 Security benefits, 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.

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We would love to hear your comments and feedback

  • Jaime

    To have this happen would be horrible:(

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