Can a Debt Collecting Agency Legally Put a Hold on Banking Accounts?

A court ruling against you can result in a bank account freeze.

A debt collection agency that files a lawsuit against you and wins will be awarded a judgment by the court. A court judgment gives the collection agency additional debt recovery rights, such as the ability to garnish funds directly from your bank accounts. Laws regarding a collection agency's rights to collect on a judgment vary from state to state.

Facts

Before the debt collection agency can seize money from your bank accounts, it must request a writ of execution from the court that awarded the judgment. The company must then serve the writ of execution on your bank. Once a bank receives a writ of garnishment, it must comply with the order.

Effects

Before the bank hands over the money in your accounts to the collection agency, it will freeze your bank account for 21 days. This gives you time to contest the judgment and garnishment. Unfortunately, any purchases you previously made via debit card or check will not clear, and this can result in bank fees.

Considerations

According to the Federal Trade Commission, funds such as Social Security payments, child support and unemployment are exempt from garnishment by collection agencies. If your accounts contain exempt funds, you can notify the bank of that fact during the 21 day holding period and prevent it from turning those funds over to the collection agency.

References

• Bankrate.com: Creditors Can Garnish Your Bank Accounts
• Federal Trade Commission: Creditors Seeking Federal Benefits in Your Bank Account

Resources

• Lawyers.com: Bank Account Seizures
• NEDAP: The Basics of Defending Creditor Lawsuits
• U.S. Department of the Treasury: Answers About Credit Card Payments and Late Payments