Can Debt Collectors Garnish Your Bank Account? Know Your Rights

Creditors can garnish your bank account through a bank levy. They can take money directly from your account to satisfy a debt. Most creditors must sue you and win a court judgment first. But government agencies like the IRS can garnish without a court order. Unlike wage garnishment, which has limits, a bank levy can take all non-exempt funds. However, certain income is protected by federal law. Social Security and veterans’ benefits cannot be touched. Filing for bankruptcy can stop most garnishments immediately. Chapter 7 may erase eligible debts permanently.

Can Creditors Garnish Your Bank Account?

Yes, creditors can garnish your bank account. People call this a bank levy or account garnishment. It works like wage garnishment but affects your bank account instead. Some of the rules are different.

How Does a Creditor Get the Right to Garnish Your Bank Account?

Before most creditors can garnish your account, they must win in court. They must sue you and get a judgment. Here’s how it works:

• The creditor files a lawsuit claiming you owe money.
• You receive a summons and complaint with a response deadline.
• The court issues a default judgment if you don’t respond.
• If you respond, the creditor must prove the debt.

Once the creditor has a court judgment, they can request a garnishment order. The court issues a bank levy allowing them to take money directly. Your bank must comply with the garnishment order.

If you’re being sued for a debt, responding is crucial. Ignoring the lawsuit leads to a default judgment against you. Our partner Solo has helped over 280,000 people respond to debt lawsuits. They offer a 100% money-back guarantee on their services. You don’t need a lawyer to fight back.

Can Your Bank Account Be Garnished Without Notice?

In most cases, you’ll have some notice before garnishment. Most creditors must get a court order before starting the process. They sue you, win a judgment, then request a garnishment order. Once granted, your bank must freeze your account and turn over funds.

However, some government agencies don’t need a court order. These include:

• The IRS for unpaid taxes
• State agencies for past-due child support
• The Department of Education for defaulted federal student loans

If a creditor wins a judgment, they won’t necessarily tell you beforehand. Your first sign could be a declined debit card. If your account is frozen, you have a short window to challenge. You can claim exemptions that protect certain types of income.

Is There a Limit to How Much Creditors Can Take?

No, there’s no set limit on bank account garnishments. Creditors can take up to the full amount approved by the court. Unlike wage garnishment, which is capped at 25% of disposable income, bank levies have no automatic limits. Your bank may freeze and turn over all available non-exempt funds.

However, certain types of income are protected under federal law. These include:

• Social Security benefits
• Supplemental Security Income (SSI)
• Veterans’ benefits
• Certain federal student aid
• Child support and spousal support in some states
• Workers’ compensation benefits

Banks must review accounts and automatically protect federal benefits. But this only applies to benefits directly deposited within the last two months. If you deposited exempt funds by check or transfer, you must claim exemptions. You’ll need to take extra steps to protect your money.

If your account is garnished and the money is protected, challenge the levy. Since frozen funds can be taken quickly, you must act fast. File a claim of exemption with the court immediately.

Can Creditors Take Any Money in Your Bank Account?

No, creditors can’t take all your money. Certain types of income are protected by law. Federal law exempts specific benefits from garnishment:

• Social Security and Supplemental Security Income (SSI)
• Veterans’ benefits
• Federal student aid
• Certain retirement benefits
• Workers’ compensation in most states
• Child support and alimony payments in some states

If your bank account contains both exempt and non-exempt funds, proving protection can be tricky. Keep exempt funds in a separate account from other income. Many online banks offer free accounts for direct deposit purposes.

Even if your money isn’t automatically protected, state laws may help. State exemption laws may protect a portion of your wages or property. You can check your state’s specific rules at LawHelp.org. Each state offers different protections from garnishment.

If you believe your funds are exempt, file a claim immediately. Search online for your local court and “claim of exemption form.” Submit the form as soon as you receive notice. Don’t wait or your money could be gone.

Bankruptcy Can Stop Garnishment Fast

If a creditor is draining your bank account, bankruptcy stops them instantly. The moment you file, the automatic stay goes into effect. Creditors must halt most collection efforts, including bank levies and garnishments. They can’t take any more money without court permission.

Some debts aren’t affected by the automatic stay. You must continue paying child support and certain other obligations. But most consumer debts are covered by bankruptcy protection.

If you file for Chapter 7 bankruptcy, most unsecured debts are discharged. Credit cards, medical bills, and personal loans are wiped out. Creditors can never try to collect those debts again. However, child support, most taxes, and many student loans typically can’t be discharged. Speak with a bankruptcy attorney for free to learn if you qualify.

Other Ways to Stop Bank Account Garnishment

Bankruptcy isn’t the only way to stop a bank levy. Depending on your situation, you can stop the garnishment differently. You can also limit its impact with the right approach.

Here are some options to consider:

• Pay off the debt: If you have the funds, pay the debt in full. Your levy stops immediately with no further withdrawals.
• Negotiate with the creditor: Many creditors will settle for less than the full amount. They want to avoid the cost of enforcing a judgment. Negotiate a lump-sum payment or payment plan even after judgment.
• Challenge the garnishment: If you believe the garnishment is incorrect, challenge it in court. Some possible defenses include:
  • The debt has already been paid
  • The statute of limitations has expired
  • The creditor violated debt collection laws
  • You were a victim of identity theft
• Claim exemptions: If funds come from exempt sources like Social Security, file a claim. The bank may be required to release the funds back.

If your case is in small claims court, you can represent yourself. But getting legal advice helps you understand your rights. If you fight the garnishment in court, bring relevant documents. Payment receipts and bank statements support your case.

Your Options After a Bank Levy

Bank account levies are one of the most frustrating collection techniques. Your account is frozen immediately without warning. Your debit card will be declined even though you have money. You lose access to your own funds overnight.

If you get notice of a bank levy, you have options. You could use your exemptions to protect certain funds. You could negotiate with the creditor for a payment plan. If these options don’t work, consult with a bankruptcy attorney. Bankruptcy is the strongest tool you have. It can stop most levies and garnishments instantly upon filing. You regain control of your finances and get a fresh start.