If a court issues a judgment against you, federal law allows a debt collector or collections agency to take money from your account to satisfy, or pay toward, your debt. This can be done in lieu of garnishing your wages, which is no picnic, either. In any case, here’s what you should know about collections agencies and your bank accounts.
Garnishing Your Bank Account
Before any bank account garnishment takes place, the Fair Debt Collection Practices Act directs that the collection agency must give you 30 days, through written notice, to clear the debt. After that, the collection agency is allowed to sue you and the court then must file a judgment against you. Only then can garnishment occur, and even with that, the process varies among states.
What About Exemptions?
Government benefits such as federal retirement and disability benefits, social security
benefits, Supplemental Security Income, military annuities, etc., are generally
exempt from garnishment. Workers comp benefits, life insurance benefits, and child support payments are also exempt. Note, though, that such funds may be garnished if the aim is to satisfy back child support, delinquent taxes, student loans, or alimony.
Further, if you believe that a collections agency is unlawfully withdrawing money from your account, you may want to hire a lawyer to help you in getting the garnishment released.
Some states have other protective laws. For example, if your account contains less than a certain amount, your state may deem it illegal for your bank to freeze your account.
If all the money in your account comes from exempt sources, the bank freeze must be released. Now, if what you have in your account includes a combination of exempt as well as non-exempt funds, a lien may still be placed on the account. However, the burden is on you to verify the exempt funds. You may provide such verification through automatic pension or benefits statements, for example.
How Much Can Be Garnished from My Account?
Each state has its own laws regarding bank levies. However, a collection agency can take money from your bank account. In fact, a creditor can usually withdraw all the cash you have in your account until your debt has been repaid.
The Bank’s Role
Before a bank can put a lien or your account, it must be served, by your creditor, a writ of execution. Such a writ directs the bank to freeze your account and withhold cash. There will be a short holding period, which you can use to dispute the action. After that, the institution releases the money to the creditor.
By the way, you aren’t allowed to transfer or withdraw funds while they’re frozen. However, it’s illegal for a creditor to seize more than what’s owed.
What Does a Frozen Bank Account Mean?
It basically means that you won’t have access to your money, and your bank may reject any transactions in process, including checks you’ve written. Debit card or automatic bill payments may be declined, according to Sapling.
How Do I Get My Bank Account Unfrozen?
It all hinges on why your account was frozen in the first place. If it involves a security issue – fraud may be detected, for instance – you will likely be able to handle the issue quickly and on your own.
However, if a levy or garnishment is involved, your bank can’t independently unfreeze your account. In exchange for lifting the garnishment, you might be able to connect with the creditor and establish a payment plan or settlement.
If a portion of your funds are from government benefits such as Social Security, your bank must protect them from garnishment and allow you to access them.
Ultimately, collections agencies have certain rules they must follow, in terms of your bank accounts. You must be certain that their actions are lawful. After all, federal law protects you, too.