Angry creditors may threaten to seize your assets if your do not pay off a past-due debt. Unless your creditor works for the U.S. government, however, it must have court approval in the form of a civil judgment before laying claim to your assets. Even if the creditor wins a civil judgment against you in a lawsuit, it must honor your state and federal exemptions when seizing your assets.
The U.S. Department of Labor notes that a minimum of 75 percent of your paycheck is exempt from seizure. Each state has the option to either adhere to federal wage exemptions or set its own stricter policies governing how much of a consumer’s earnings a judgment creditor can seize. Because of this, states have the right not only to restrict wage garnishment but to disallow it entirely. Four U.S. states -- Pennsylvania, North Carolina, South Carolina and Texas -- do not allow judgment creditors to garnish wages.
Federal benefits you receive, such as veterans benefits, Social Security, military annuities and federal student aid are exempt from garnishment by judgment creditors. Not only does the law prevent creditors from garnishing federal benefits, but creditors also cannot levy federal benefits from your bank account after a lawsuit.
If you owe unpaid debt to the federal government, the government can and will garnish your federal benefits and sometimes seize those benefits directly from your bank account. The U.S. government, however, does not need a civil judgment before using garnishments and levies as collection tools.
Creditors cannot seize your retirement accounts in lieu of payment after a civil judgment. Although your IRA and 401k plans are safe from seizure, any retirement savings you hold in a standard savings or checking account is subject to seizure through a bank levy. Thus, investing your retirement savings helps ensure that the money will still be there for you when you reach retirement age and are ready to use it.
When you finance a large purchase, such as a home or car, the payments you make toward the principal balance of the loan help you build equity. Depending on your state’s laws, a certain amount of equity you hold in major assets is classified as exempt.
Exemptions do not prevent creditors from seizing assets but often deter them from doing so. In the event the creditor seizes an asset anyway, it must provide you with financial compensation equal to that of your exempt equity.
- U.S. Department of Labor; Wages and Hours Worked – Wage Garnishment; September 2009
- Bills.com; Can Georgia Creditor Levy My Bank Account, Put a Lien on My Property or Garnish My Wages?; May 2010
- Federal Trade Commission; Creditors Seeking Federal Benefits in Your Bank Account? May 2009
- Neighborhood Economic Development Advocacy Project; What Is Exempt From Debt Collection?; 2007
- Lawyers.com; Creditors' Legal Rights; William Fischer; 2011
Ciele Edwards holds a Bachelor of Arts in English and has been a consumer advocate and credit specialist for more than 10 years. She currently works in the real-estate industry as a consumer credit and debt specialist. Edwards has experience working with collections, liens, judgments, bankruptcies, loans and credit law.