The court awards a civil judgment after a creditor wins a lawsuit against you. State laws vary regarding what additional debt recovery options a judgment gives your creditor, but judgments in all states permit creditors to seize either a portion your income, your assets or both.
Judgment creditors often pursue wage garnishment first after winning a court case against you. Federal wage garnishment laws limit creditors to taking only a percentage of your disposable (after-tax) income. Each state, however, reserves the right to place additional limits on the percentage of your wages accessible to creditors holding a judgment against you. If you live in a community property state, such as California, the creditor may file a garnishment order against your spouse’s wages as well – even if your spouse did not incur the original debt.
A creditor that knows where you bank can seize assets directly from your account. Even if you live in a state that prohibits creditors from garnishing wages, a bank account garnishment allows creditors to circumvent that restriction by claiming your money directly from your bank accounts.
Social Security payments, child support, unemployment payments, military annuities and public assistance payments are exempt from bank garnishment. The U.S. Department of the Treasury warns, however, that unless you file an exemption claim with your bank after notification of the seizure, your bank will turn over all the funds within your account – not merely those exempt from seizure.
If you won a judgment against someone else, or are currently collecting money for a loan you made to another individual, your creditor can use its judgment to intercept the payments you receive by serving the third party with a legal levy. This levy instructs the individual who owes you money that it must pay the debt directly to the creditor rather than to you.
A creditor that places a lien on your property gains a security interest it can use to seize ownership. Although judgment liens against real estate are relatively common, creditors can also place liens against automobiles, crops, and valuables.
When seizing your property to recover the unpaid debt, the creditor must respect any liens filed before its own. For example, a creditor who places a lien against an automobile cannot seize the automobile and neglect to pay a pre-existing auto loan. Clothes and non-valuable home furnishings are typically exempt from seizure.
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.