Bank Account Seizures Text Size:

Bank account seizures may seem more common than they really are. There are rules to follow if someone wants to take money from your bank account. You can take steps beforehand to make this less of a threat.

Obviously, it's better if you can have a payment plan or other plan established than to let it get to this stage. First, your account can't just be accessed anytime.

Type of Account Vulnerable

A collector trying to get money out of your bank account will have a difficult time taking money from any bank account in you or spouses name. There has to be a court order that's made public authorizing this action.

Exempt Funds

Even if the bank account is in just your name, there are some that are "exempt" from debt collection under state or federal law. The rationale is to allow people to preserve the basic living necessities. Exempt funds remain exempt when deposited in checking, savings or CD accounts so long as they are readily available for the day to day needs of the recipient and haven't been converted into a "permanent investment."

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
• Proceeds of guaranteed student loans

Some states allow you a "wildcard" exemption of property or cash to be used as you see fit so you don't lose all of your money. So if you are forced to disclose 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.

You'll also want to notify the bank ahead of time to let them know that funds in a particular account are exempt.

Seizure Process

When the bank received a notice from the debt collector, the bank must "freeze" funds in your account that aren't exempt. This means you can't withdraw the money or use it to pay checks you've written. If you've already written checks and in danger of bouncing any, you'll need to make other arragements for payment.

When you receive notice from the debt collector or bank that your bank account was frozen, you need to contact the bank and collector in writing of any exempt funds. Ideally, you need 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. If you know ahead of time that there will be a court judgment entered against you, keep the exempt funds in a separate account and not commingle them.

Keep Exempt Funds in Separate Account

If you wish to protect your exempt benefits you should keep your funds in banks to which you do not owe money, and you should segregate your public assistance funds in special purpose accounts clearly designated as such. If you become a judgment debtor, the bank should be immediately reminded, and the creditor informed, of the purpose of the account. If the account is nonetheless garnished or set-off, you may have a cause of action against the creditor for wrongful garnishment.

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.

Questions for Your Attorney

• Is there a limit to the amount of exempt funds that may be accumulated before they lose protection?
• Are exempt funds subject to a claim for maintenance or child support?
• May a creditor freeze my bank account without notifying me?

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