If you owe an outstanding debt, your creditor can attempt to collect by seeking a civil judgment against you. If your creditor sues and wins, it can pursue wage garnishment or freeze your bank accounts to force you to pay. Funds held in an investment account may also be attached for debt repayment. If you own the account jointly with a spouse or other individual, you need to understand how the garnishment process works.
Executing a Garnishment
To seize funds in a joint investment account, your creditor must file a writ of garnishment with the court that granted the judgment. The garnishment order must specify the amount to be garnished and the financial institution's name and address. The creditor can petition the court to compel you to provide this information if they do not already have it. The garnishment order is then served on the financial institution. You will have a specific amount of time under your state's law to challenge the garnishment order. Once the holding period expires, the financial institution is required to turn over funds in the account to the court. The court then distributes the money to the creditor.
Treatment of Joint Assets
Generally, if you own a joint investment account with your spouse or someone else, all funds in the account are considered to belong to you both equally. This means that a creditor can legally execute a garnishment against a joint account. Typically, when a joint account is garnished, it is the responsibility of the non-debtor to demonstrate ownership of the funds and/or establish their exempt status. If you're married and live in a community property state, such as Texas, the non-debtor spouse's assets can be seized without recourse depending on the type of debt and when the debt was incurred.
If you or the other account owner fund a joint investment account with certain types of income, you may be able to claim an exemption for these funds that prevents creditors from garnishing them. Under federal law, income protected from garnishment includes Social Security benefits, veterans' benefits, federal disability or retirement benefits, federal student aid, supplemental security income and military survivor's benefits. Depending on your state of residence, you may also be able to exempt child support or alimony you receive, worker's compensation and/or unemployment. You must file your claim within the time frame prescribed by the garnishment order to protect exempt income.
If you're served with a garnishment order, you can attempt to negotiate a payment or settlement agreement with the creditor to protect funds in your joint investment account. If the creditor is unwilling to work with you and you cannot claim any exemptions, you may also consider filing for bankruptcy protection. When you file Chapter 7 or Chapter 13 bankruptcy, the court places an automatic stay against your creditors, which prevents collection actions including the enforcement of judgments. Contact a qualified bankruptcy attorney to discuss whether bankruptcy is an appropriate option for your situation.
- Neighborhood Economic Development Advocacy Project: What Is Exempt from Debt Collection?
- Nolo: Collect Your Court Judgment from Deposit Accounts
- U.S. Treasury Department: Answers About Garnishments
- Federal Trade Commission: Creditors Seeking Federal Benefits in Your Bank Account? Understanding Your Rights
- Consumer Financial Protection Bureau. "What Is a Garnishment?" Accessed June 8, 2020.
- Federal Student Aid. "Collections." Accessed June 8, 2020.
- Nolo. "How to Object to a Wage Garnishment." Accessed June 8, 2020.
- Federal Trade Commission. "Debt Collection FAQs." Accessed June 8, 2020.
- Federal Trade Commission. "Settling Credit Card Debt." Accessed June 8, 2020.
- Justia. "Wage Garnishment and Bankruptcy." Accessed June 8, 2020.
Rebecca Lake is a freelance writer and virtual assistant living in the southeast. She has been writing professionally since 2009 for various websites. Lake received her master's degree in criminal justice from Charleston Southern University.