Bank garnishment gives creditors a powerful tool for debt collection when you’re behind on payments. But this doesn’t mean you’re helpless. In some cases, garnishment can be prevented, especially when the only money in your account comes from federal benefits.
How does bank garnishment work?
Bank garnishment is a legal procedure that allows creditors to take money from your bank account. The bank freezes the funds in your account, and the bank must send that money to the creditors to pay off your debts.
For a creditor to claim funds from your bank account, they must submit a request to the bank showing proof of a legal judgment against you. Some government creditors, like the Internal Revenue Service, do not require a court judgment. Here are some things you should know:
- Advance notice: Once the creditor submits the request, the bank will freeze your account and review the situation. The bank may not notify you that a garnishment is underway – creditors might not notify you either. Garnishment is a strategy that creditors typically use after they have exhausted other means of debt collection from you. By that time, it is assumed that you already know that creditors are taking legal action and trying to get money from you.
- Objection options: You should have an opportunity to object to the garnishment. This could prevent or reduce the total amount of money that creditors can take from your account. If you do not take any action, it is possible for lenders to completely empty your account, making it difficult to pay basic expenses. You may also incur additional late fees from other institutions. Additionally, the bank typically charges fees for processing the garnishment.
Note: If you’re unsure who is garnishing your account, the bank should be able to provide contact information for the creditor.
How to stop garnishment
Garnishments can continue until your debt is paid in full, and they can be used repeatedly. If you do not have enough available funds the first time, creditors can come back multiple times.
However, you can prevent and limit garnishments on your account. Speak with a local attorney (laws vary from state to state) to find out what options are available to you. Possible approaches include:
- Creditor error: If you do not owe them money, you can fight the garnishment and prevent the creditor from proceeding. This approach can work if you have already paid the debt or if the amount is incorrect.
- Identity theft: If you are a victim of identity theft, you can prove that someone else, not you, received the funds.
- Old debts: If the statute of limitations has expired, the creditor may not have the authority to collect money from your account, but this may depend on where you live, the state law cited in the credit agreement, the type of debt, and other factors.
- Failure to notify: If the creditor did not notify you of any legal action – you were not properly and legally notified – it may be possible to stop any future legal action against you.
- Bankruptcy: Filing for bankruptcy may halt the garnishment process, at least temporarily.
- Negotiation: Any agreement you reach with creditors can stop the process. It may be helpful to try negotiating so that you can gain control of the situation. For example, the Internal Revenue Service (IRS) may release you from the garnishment if they determine that the process is causing “immediate economic hardship.”
Additionally, the source of the funds matters. Depending on how the money in your account was obtained, it may not be available to creditors. The bank is supposed to know whether your account balance includes protected funds. However, things can get complicated if you have deposits from various sources. Special treatment applies to:
- Payments
- Federal benefits: Advantages such as Social Security payments or federal employee pensions are typically protected. However, if you owe the federal government, you won’t enjoy the same protection as a private debtor if you owe a private creditor.
- Child support: Money you receive from child support payments may be exempt from collections. However, if you are behind on child support, it may be easier for your former partner to access your bank account.
Who uses levies?
There can be several different types of creditors responsible for levies. The Internal Revenue Service and the Department of Education are likely to use levies, but private creditors (lenders, child support recipients, etc.) can also win a judgment against you and levy your account.
Note: If you are in debt and unable to reach an agreement with any creditor, it’s best to anticipate that they may use the levy as a strategy to collect money.
Get legal help
Again, it’s essential to get advice from a local attorney familiar with your situation whenever you find yourself facing legal issues. Laws vary from state to state, and things change over time. Additionally, every case is unique. Appealing a levy is a complex process, and you may need to argue your case. Creditors will do everything they can to argue that the money in your account is not exempt.
Frequently Asked Questions (FAQs)
Does money come out of my account immediately when the IRS levies my bank account?
No, but you do not have access to it. There is a 21-day hold period before the IRS seizes the funds. This is done to give you time to contact the IRS and arrange to pay your tax debts.
Can funds in a joint account be levied?
Although creditors may not always take money from a joint account, they may have the right to do so, especially if the account is in your spouse’s name and you live in a state that considers property to be shared.
What is the difference between a levy and a garnishment?
Levies are typically used to take money from a debtor’s bank account, while garnishments are used to seize wages from debtors before they enter their bank accounts.
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Source: https://www.thebalancemoney.com/bank-levy-basics-315527
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