Who Can Garnish Your Bank Account?
A creditor to whom you owe a debt, or a debt collector acting on a creditor's behalf, can get a court order compelling a third party to turn over your assets to the creditor. When a creditor garnishes your bank account, state and federal laws require your bank to comply to freeze your accounts for payment of a debt. The laws and the courts determine who can garnish your bank account and the procedures creditors must follow.
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Who Can Garnish
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Any creditor may sue you to prove you owe a debt, and after winning a judgment against you for the debt, may ask for a court order to garnish your bank account. Some federal agencies, such as the Internal Revenue Service, do not need a court order to garnish your bank account. State laws regulating bank account garnishment may vary. An attorney or a local credit protection agency can provide state-specific information.
Procedures
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The creditor sends to your bank the court order to garnish your account. The garnishment order instructs the bank to freeze your account, which means you are denied access to the funds. The bank is required to provide the funds to your creditor until the debt is paid. Banks usually notify customers by letter of the intent to garnish accounts. The letter provides information about exempted funds and how to challenge the garnishment order.
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Exempt Funds
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Some or all of the money in your bank account may be exempt from garnishment by federal or state law. Social Security, Railroad Retirement benefits, Veteran's benefits and other government benefits are exempt from garnishment. Funds intended to pay alimony or child support payments and specific types of debt, including federal taxes, are also exempt from garnishment. State benefits that are exempt from garnishment vary. Your bank account information is private, so the bank, creditors and courts may not know that there are exempt funds in your account unless you tell them. Banks are not required to find out if your account contains exempt funds, but some banks try to find out this information and provide the information to the court and the creditor.
Challenges
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The letter you receive notifying you of the bank account garnishment gives you a period of time, during which you may challenge the order before the bank removes any funds from your account. If you challenge the garnishment of exempt funds, your account may remain frozen until the bank, or the court, can verify the source of the funds.
Tips and Warnings
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Once your bank account is frozen, outstanding checks and debit card charges are not paid and will result in fees for insufficient funds (NSF.) The Federal Trade Commission's consumer protection office recommends that if the freeze involves exempt funds, you should demand that your bank refund any NSF fees assessed because of the freeze.
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