Bank Account Garnishment Laws

If you have unpaid debts, the collector or debt agency has a right to take legal action against you. If the collector is able to clearly show the court that you owe the debt, the collector will be given the opportunity to garnish your wages, as well as your bank account. The Consumer Protection Act states that garnishments can only occur after the collector has received a court order to do so.

The Freeze

The collector has a right to request permission from the court to garnish your bank account. This request requires your bank to freeze your account, holding the funds until the court has made its decision. If the court approves the request, the money in your account is frozen, pending further action of the garnishment order. While you should receive a notification that your account has been frozen, it's possible the notification will not be received until after the freeze has occurred.

Can I Dispute a Freeze?

Before the garnishment is issued, you are given an opportunity to appear in court and present your side of the case. You can also negotiate with the collector before the legal proceedings begin. If you are unsuccessful in negotiating an arrangement, you should seek the help of an attorney. Once your account is frozen, no one is permitted to access the funds until the court determines that your funds are exempt. Any outstanding checks received will result in an insufficient funds status and will be declined for payment. With your attorney’s assistance, you can dispute the freeze. You will be required to prove that the funds in the account are exempt under federal law. This generally involves an additional hearing. You will be required to submit supporting documentation to prove your case.

If They Are Exempt

If the court determines that your bank account funds are, in fact, exempt from the garnishment proceedings, you must take several steps to reverse the freeze. Once the court makes its ruling, you will be provided with documentation of the decision. Make copies of these documents and take a copy, along with the original, to your bank. Demand that your bank lift the freeze from your account immediately. If your account has been subjected to fees, request the bank reverse or waive those fees and have the funds applied back into your account.

What if I Have Direct Deposit?

If you have direct deposit of your wages and income, your bank will withhold the funds, if your employer has not already done so. There are certain funds that are exempt from most garnishments. These funds include unemployment benefits, disability insurance payments, surviving spouse life insurance benefits, Social Security Benefits, Railroad Retirement Funds and Public benefits. Social Security, disability insurance and retirement income are not exempt from alimony, child support, or delinquent federal tax garnishments. All exempt funds and wages are only exempt for the first 20 days after deposit, after which, the funds may be garnished.

First Steps to Exemptions

The bank is required to send you garnishment exemption papers within two days of their notice of garnishment. Banks are not required to send the notification papers before freezing your accounts. Once you receive the package, complete the exemption forms and return the information to the bank within 14 days. You must also issue a copy to the creditor. The judge will review your case and make a decision.