What Happens When a Checking Account Is Garnished?

If you have an unpaid debt to a credit card company, to the state or IRS, you could have your checking account garnished. Creditors commonly use two methods to obtain money from people in default on their loans and credit cards: Wage garnishment up to 25 percent and checking account garnishment. When a checking account is garnished, a collection agency can legally remove everything in the account to pay off the unpaid debt, plus interest and fees. By law, a creditor has to win a judgment and an order of writ of garnishment and execution must be signed by the magistrate.

When a checking account is garnished, the creditor has to find the debtor’s checking account. This is typically done by running a credit report under the debtor’s name. The creditor doesn’t need permission to do this but must have the debtor’s Social Security number in order to pull the report. Not all credit reports contain the exact names and location of checking and bank accounts. The creditor can also obtain the information through check payments made by the debtor. There are some funds that cannot be garnished, including disability payments, Social Security benefits and child support.

Creditors must obtain a writ of garnishment for each account they go after. With most checking account garnishments, the creditor has one opportunity to retrieve money. Once the bank receives the notice of garnishment, that order takes precedence over other transactions--mainly because it is court-ordered. By law, the bank does not have to notify the account holder. They will, however, notify the account holder if there are other transactions and the account becomes overdrawn.

Bank policies generally do not stand once a court order is in place. For instance, if the account’s balance is $1,500 and the account holder wishes to remove some or all of the money and there is a garnishment for $3,000--the bank cannot disperse the money to the accountholder. Bank policies of allowing direct deposits from employers or other income sources might also not be able to be stopped on the bank's end. Money can still be automatically direct-deposited and then applied toward the garnishment. You will have to contact your income source or employer and request that your paycheck no longer be direct-deposited.

A disturbing occurrence with many checking account garnishments is when the account begins to accrue insufficient fund fees. This happens when other transactions are being debited to the account and the garnishment collects the money debited. Each transaction can accrue an insufficient fee charge and be returned to the businesses or person that the check was written to. An insufficient fund charge can also accrue if the garnishment goes through and there is a zero balance. Some banks will charge the fee so the garnishment is satisfied.

If you face wage or checking account garnishment, one of the first steps to take is contact the collection agency that represents the original creditor. The agency might be able to help you settle the debt. If the debt is old, you can ask for a settlement amount that might be less than the original amount you owe the company. You might also be able to set up payment options until the debt is paid off, which might prevent them from withdrawing money from your checking account.