Bank Account Seizures

Are you worried that someone who has a judgment against you will go after your bank account? There are rules anyone garnishing or seizing a bank account must follow, and things you can do ahead of time to make it less likely.

To begin with, the debt collector must have a court judgment against you before he or she can get at your bank account. Obviously, it's best to try to negotiate a payment plan instead of letting someone get a judgment against you. If you do end up with a court judgment against you, consider moving funds from your bank account.

Type of Account Vulnerable

A debt collector will be aiming at any bank accounts in your name only, or in the name of you and your spouse. Bank accounts in your name and the name of someone else other than your spouse will be more difficult for a debt collector to garnish or seize.

Exempt Funds

Even if the bank account is in just your name, there are some types of funds that are considered "exempt" from debt collection under state or federal law. The rationale behind these laws is to allow people to preserve the basic necessities for living. Although it varies by state, exempt funds would typically include:

• Most government benefits, including Social Security, unemployment insurance, veterans' benefits and public assistance
• A percentage of your earned wages, which varies by state
• Alimony or child support payments, and other payments for the support of a dependent
• Proceeds of the sale of property which is exempt from collection, such as a homestead exemption
• Disability or unemployment benefits from your employer
• Workers' compensation
• Retirement benefits, such as pension or annuity payments
• Life insurance benefits due to the death of an insured or for wrongful death claims
• Payments due to personal bodily injury, in an amount that varies by state

In addition, many states allow debtors what's called a "wildcard" exemption of $1,500 to $2,000 in property or cash to be used as the debtor sees fit. So if you are forced to divulge your assets in a post-judgment procedure (sometimes called "supplemental proceedings" or "citation to discover assets"), you'll want to let the debt collector know at that point that the funds in a particular bank account are exempt either because of the type of funds they are or because they are your wildcard exemption. You'll also want to write a letter to the bank ahead of time to let them know that all the funds in a particular account are exempt.

Seizure Process

When the bank receives notice from the debt collector, the bank must "freeze" any funds in your account that are not exempt from collection. That means you can't withdraw the money or use it to pay checks you've written. If you've already written checks on the account and are in danger of "bouncing," you'll want to make alternate arrangements for payment on those checks.

When you receive notice from the debt collector or bank that your account has been frozen, you'll want to notify the bank and the debt collector in writing if the funds in the account are exempt. Ideally, you would be able to prove that all the funds in a particular bank account are exempt. If you have "commingled" exempt and non-exempt funds, it becomes more difficult to protect. If you know ahead of time that there will be a court judgment entered against you, it makes sense to keep the exempt funds in a separate account, and not commingle exempt and non-exempt funds.

Many courts allow you a formal hearing to explain why the frozen funds shouldn't be seized or garnished. If the notice of the seizure or garnishment of funds doesn't detail the steps you must follow, call the clerk of the court where the judgment was entered and find out the appropriate process. There usually isn't a lot of time to protest a bank account garnishment or seizure, so it's best to move quickly. And the sooner you act, the sooner the exempt funds will again be available for your use.

It's important to provide detailed documentation that the funds in the account are from entirely exempt sources. For instance, you might provide:

• Bank deposit slips
• Paystubs
• Statements from government benefit agencies
• Statements from insurance companies
• Real estate closing statements
• Pension or annuity statements
• Bank account statements and registers
• Any other documentation you can find that traces the funds from an exempt source into that particular bank account

It's best to provide the detailed document to the debt collector and the court ahead of time, in as clear a manner as possible.

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