Can a Savings Bond Be Garnished by Creditors?

When you get behind on payments with a creditor, the creditor may opt to seek garnishment against you. People usually are familiar with the fact creditors can garnishee bank and other accounts. They tend to be less familiar with whether creditors can go after the savings bonds they have.

Creditors have the right to garnish savings bonds you have. However, they still must go through the proper legal procedure to obtain authorization to take the bond.

As explained by Incorporate-us.com, creditors have a right to assets that are clearly connected to you -- that is, that are in your name and which you own. Bearer bonds, which allow anyone who holds the bond to cash it, have been illegal in the United States since 1982, so most bonds at the time of publication are registered securities. This means the issuer of the bond, the U.S. Department of Treasury in the case of savings bonds, has a record of who owns the bond. Because bonds have clear ownership, they are financial investments that are not protected from garnishment.

Because the United States Department of Treasury backs savings bonds, creditors consider them as assets and allow you to use savings bonds as collateral. If you offer a savings bond to a creditor in this way for a secured loan, the creditor's right to the bond in the instance of default becomes even clearer, as you agree in your loan contract to give up the bond if you don't pay.

In order to collect a savings bond from you, the creditor must follow the same due process procedures as he would to collect any other asset or property. This means the creditor has to file a formal lawsuit against you and prove to the court that you in fact owe the debt. You have a right to defend yourself against these lawsuits by yourself or with the help of an attorney. Until the creditor has a judgment against you, it does not have the legal authority to take your bonds.

If a creditor is able to get a judgment against you that allows the collection of your savings bonds, the creditor won't be able to simply take the bonds to a bank and cash them. This has to do with the fact savings bonds are registered securities. The U.S. Department of Treasury explains that, when creditors present savings bonds they have gained via a valid garnishment order, the bank, which is not authorized to cash savings bonds for creditors, is supposed to send paper savings bonds to the Division of Customer Assistance, Office of Investor Services, Bureau of the Public Debt. The Treasury will not reissue the bond the way it would to show a change in ownership under normal circumstances. Instead, it provides payment to "the purchaser at a sale under a levy or to the officer authorized to levy upon the property of the registered owner or co-owners, under appropriate process to satisfy a money judgment." For electronic bonds, your creditor must notify the Treasury of the garnishment order so the Treasury can access your TreasuryDirect account and make the required payment.