In general, you should never give your bank account information to anyone, including creditors. If a creditor tells you that it’s the only way they’ll accept payments, consider opening a separate account specifically for that creditor and giving them access to that account only. For creditors who require automatic payments but accept debit cards, setting up a prepaid debit card somewhere other than the bank where you usually do business may provide some protection.
Under certain circumstances, creditors can access your bank account to pay a debt. However they must go through a legal process first.
Keep It to Yourself
Giving a creditor your bank account information is essentially giving them permission to access the account. Even if you’ve agreed to allow the creditor to debit a specific amount from your account each month, the creditor could take more money. If the creditor takes more, getting your money back can be difficult or impossible. Anyone who has ever tried to remedy a duplicate withdrawal made in error by a creditor knows that it can be an uphill battle. Unraveling this kind of mess can be avoided by simply not giving creditors your banking information in the first place.
That said, creditors do have ways of obtaining your bank account information. Most credit applications require you to provide banking information, so chances are that you gave them your bank’s name and your account number when you applied for the credit card or loan. Unless you’ve changed banks since you filled out their application, that’s as far as they need to look. Another way creditors get your bank account information is from the last check or electronic payment you sent to them.
Court-Ordered Account Access
If you default on a debt, the most common steps a creditor takes when all else has failed are garnishing your wages or levying your bank account. A bank account levy means that the creditor has obtained court approval to take all of the money in your account.
To take funds from your bank account, a creditor has to have a court order. To get that court order they have to file a lawsuit against you and win the case. If they win, the court enters a judgement against you and the creditor can proceed with levying your bank account. One of the most common ways creditors obtain favorable judgements is by the debtor not responding to earlier attempts to collect the debt and, worst of all, not showing up in court.
Court-Ordered Access Steps
Once the creditor has won the court case, they’re required to notify you and the bank of their intention to withdraw money from your account. Creditors always notify the bank first. They notify you a couple of days later so that you can’t drain your account in advance of the levy. This is legal. In all but a handful of states, the levy only applies to the money that’s in your account at the time the bank is notified. Unless you have more money in your account than the judgement is for, your bank will not honor any outstanding checks, or debit card or ATM transactions.
The federal government and your own bank are exceptions to this legal process. If you owe back taxes to the IRS or have federally funded student loans, the federal government can access your bank account or your wages without going through court. Similarly, if you’ve defaulted on a credit card that you got through the same bank that has your checking account, in most cases that bank can dip into your checking funds to pay the credit card. Your credit cardholder agreement should contain this information.
Do Not Avoid Action
It’s common to feel overwhelmed when you’re in debt, but whatever you do, do not ignore a subpoena or notice of a hearing. Before a judge can rule on the lawsuit filed by your creditor, a process has to be followed. You have to be served with a summons, the creditor has to prove that you’ve been served and a court date has to be set. While this process is in motion, the creditor cannot access your bank account. So, although you will not specifically be notified in advance that a creditor is about to drain your account, you’ll have plenty of warning that it’s a strong possibility.
- Fair Dept Collection: Garnishment actions on wages and bank accounts
- Nolo: How Do Judgment Creditors Find Your Property?
- Can a Debt Collector Get Into My Bank Account?
- IRS. “What Is a Levy?” Accessed May 5, 2020.
- Nolo. “Frozen Bank Accounts.” Accessed May 5, 2020.
- Internal Revenue Service. "Depositaries Requested to Adhere to Levy Compliance Rules." Accessed May 5, 2020.
- Chase. “Important Customer Information,” Page 2. Accessed May 5, 2020.
- Taxpayer Advocate Service. "Levies." Accessed May 5, 2020.
- Consumer Financial Protection Bureau. "My Debt Is Several Years Old. Can Debt Collectors Still Collect?" Accessed May 5, 2020.
- United States Courts. “Chapter 7 - Bankruptcy Basics.” Accessed May 5, 2020.
- United States Courts. “Chapter 13 - Bankruptcy Basics.” Accessed May 5, 2020.
- Internal Revenue Service. "Declaring Bankruptcy." Accessed May 5, 2020.
- Internal Revenue Service. "What if a Levy Is Causing a Hardship." Accessed May 5, 2020.
- IRS. “Social Security Benefits Eligible for the Federal Payment Levy Program.” Accessed May 5, 2020.
- Taxpayer Advocate Service. "What You Need to Know: The Federal Levy Program as It Applies to Your Social Security Benefits." Accessed May 5, 2020.
- Consumer Financial Protection Bureau. "Can a Debt Collector Take My Social Security or VA Benefits?" Accessed May 5, 2020.
LeDona Withaar has over 20 years’ experience as a securities industry professional and finance manager. She was an auditor for the National Association of Securities Dealers, a compliance manager for UNX, Inc. and a securities compliance specialist at Capital Group. She has an MBA from Simmons College in Boston, Massachusetts and a BA from Mills College in Oakland, California. She has done volunteer work in corporate development for nonprofit organizations such as the Boston Symphony Orchestra. She currently owns and operates her own small business in addition to writing for business and financial publications such as Budgeting the Nest, Zacks and PocketSense.