Bank account garnishment means that a debt collector has successfully sued to have money taken out of your bank account. This happens if you haven’t repaid debts such as a medical bill or unpaid taxes. Your bank isn't required to notify you of an account garnishment unless the withdrawal overdraws your balance. Depending on where you live, you may have certain rights and protections against having your bank account garnished.
- What is Bank Account Garnishment?
- Can Your Bank Account Be Garnished Without Notice?
- What Happens When Your Account is Garnished?
- What Can You Do When Your Account is Garnished?
What is Bank Account Garnishment?
Bank account garnishment means that a collection agency is legally allowed to remove money from your account to repay an outstanding debt, and is usually a last resort that creditors turn to when debtors repeatedly ignore requests to pay back what they owe. Loan companies won't take the costly legal steps required to garnish a debtor's bank account unless their mailed notices and phone calls have failed to settle the debt.
According to the law, a creditor needs to win a judgment in order to garnish your account. In other words, the lender must file a lawsuit, which requires an attorney to deliver notice to both the borrower and the court. To begin withdrawing funds from a debtor's account, the creditor needs an order or writ of garnishment, signed by a court official. The Internal Revenue Service (IRS) is the only creditor that can garnish money from bank accounts without a judgment.
Having your bank account garnished is different from having your wages garnished. A court-ordered wage garnishment requires your employer to withhold a certain amount of your paycheck and send it to your creditor. Since the deduction takes place before your paycheck is cashed, this means that your bank plays no role in a wage garnishment. In rare cases, it's possible for creditors to garnish both your wages and your bank account at the same time.
Can Your Bank Account Be Garnished Without Notice?
Once a garnishment is approved in court, the creditor will notify you before contacting your bank to begin the actual garnishment. However, the bank itself has no legal obligation to inform you when money is withdrawn due to an account garnishment. However, you may receive an automated overdraft notification if the garnished amount is greater than your available account balance. The notification of garnishment should come from your creditor and not your bank.
After your bank is notified, it will need to follow the court order before honoring any other transactions you have scheduled. Federal law states that individuals who receive federal benefits will have their last two months’ worth of deposits reviewed to see which ones are exempt. If you believe that your bank account may be garnished, notify your bank of these transactions to ensure those funds are properly exempted.
What Happens When Your Account is Garnished?
When a creditor garnishes your bank account, money that isn’t exempt from garnishment will be frozen and seized. Some banks may also charge non-sufficient fund (NSF) fees if the creditor attempts to withdraw more money than you have. Even if you have overdraft protection, the bank may be legally obligated to fulfill the transaction until the garnishment is satisfied. Some banks also charge a separate additional garnishment .
Depending on where you live, account garnishment doesn't necessarily mean the loss of your entire balance. State laws on bank garnishment vary, but most states impose a garnishment limit based on a percentage of your disposable income. This ensures that debtors will keep enough money to meet their living expenses. Certain types of income are specifically protected against garnishment. For example, direct deposits from federal benefits—such as Social Security—are protected to some degree in every state.
What Can You Do When Your Account is Garnished?
To lift the garnishment, you can try to contact the collection agency to negotiate alternative payment options. You may be able to lower interest payments, reduce the amount you owe, or make partial payments for a certain amount of time. However, you'll have more bargaining power if you reach out to your creditor before a judgment is made. It's in your best interest to prevent an account garnishment from happening in the first place.
You can challenge the judgment in cases where the garnishment is made in error, is improperly executed, or presents a serious financial threat to you. If you decide to challenge the garnishment, seek help from an attorney and act quickly since you may only have up to five business days. If you can’t afford an attorney, search for legal aid offices that offer services for free or at a reduced rate.
Filing for bankruptcy can stop a garnishment, but this should be considered as a last resort. When you declare bankruptcy, an injunction goes into effect that stops most collectors from calling, sending letters, or filing lawsuits and garnishments. The creditor filing the suit against you can ask the court to lift the injunction, but only under very special circumstances, but this doesn't mean discharging your debt. You may still owe money after a bankruptcy.