Falling behind on your bills can be the beginning of a slippery slope. When creditors get tired of waiting for payment, they can take collection actions against you that might leave your budget even tighter. Eventually, they can get a court order that allows them to seize money in your bank account. The exact rules for this differ from state to state, but one rule is universal: Creditors can’t take anything from you unless they first sue you in court and win.
The Lawsuit Process
You have a legal right to notification of any lawsuit filed against you. A creditor must serve you with a copy of the complaint it has filed with the court so you know what’s going on and can fight its claim. If you can’t defend yourself because you legitimately owe the money, the judge will award the creditor a judgment against you. More critically for many debtors, if you don’t defend yourself by filing an answer to the creditor’s complaint or appearing in court, the judge will give the creditor a default judgment for whatever amount of money it claims you owe. The creditor must serve you with a copy of this judgment as well. Receiving a copy of the lawsuit and judgment should give you some warning that the creditor might next take steps to garnish your wages or freeze your bank account.
Notification to the Bank
After the creditor gets a judgment, it can ask the court for an order allowing it to levy your bank account. It then sends a copy of the order to the bank. At this point, the bank is legally obligated to immediately freeze the money in your account, up to the amount you owe. Unlike serving you with copies of the complaint and the judgment, the creditor doesn’t have to send you a copy of the levy order and warn you that it’s taking this step. It can take action as soon as it gets the order from the court, but according to the Consumer Law Center, you probably have two to three weeks. The creditor has to identify exactly where you hold a bank account before it can seize the money, which may delay the process.
How Much the Creditor Can Take
How much money the creditor can freeze depends on state law. Ask a local attorney or legal aid what the rules are in your area, and how long the levy order and judgment can last in your state. The levy order might be open-ended. If you’ve been sued for $3,000 and you have $1,000 in your bank account, the judgment creditor may be able to take the $1,000, then seize funds from future deposits until the entire $3,000 has been paid off. If you hold your account jointly with someone else, that person’s deposits usually are fair game as well because you’re both considered equal, legal owners of the funds there.
Time to Object
In most states, the bank initially only freezes your money, blocking your access to it. The money isn’t actually turned over to your creditor until a period of time has passed in accordance with state law. During this time, you can object to the seizure if you have grounds.
If a default judgment was entered against you but you never received a copy of the lawsuit or the judgment, call legal aid to find out if you can get the judgment vacated or erased. This will involve going to court, so you may need legal help.
Some money is exempt from seizure by federal law, such as Social Security benefits. If you can prove the source of the money in your account is exempt, the judgment creditor must return it to you immediately, regardless of the judgment. Call the creditor’s attorney and follow up in writing, but if the attorney drags his feet or refuses to acknowledge your claim, you may need legal assistance to get your money back.