Last Updated: April 2, 2024
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You might even wonder if my bank account can be garnished. If you are facing garnishment or a frozen account, there are several ways to protect your account, including opening one in a state that provides protection against either garnishment or freezing.
So, which states actually offer this protection? And what about the other states – is there any way to protect your bank account during bankruptcy proceedings? Keep reading to find out!
If you'd like to skip the article and speak to a debt specialist, we offer a FREE consultation.
Garnishment means that a certain percentage of your wages/salary is taken by your employer and used to pay off an outstanding debt. This process is often referred to as garnishable wages. If you're self-employed, you might wonder
how creditors garnish wages if you are self-employed.
A creditor, or debt collector, can file a lawsuit and be granted a garnishment. In some cases, you might feel helpless against wage garnishment, but a good attorney can help. In some cases, you might feel helpless against wage garnishment, but a good attorney can help, especially when understanding what happens after a civil judgment. It's also crucial to know when a debt collector might sue.
The federal and state governments can garnish your wages without a court hearing. This is usually done in cases of outstanding child support or back taxes. You will get either a court summons or a formal letter from the agency. Do not ignore either. If you’d like more information on dealing with a summons, check out this
article.
Freezing an account is properly known as levying, sometimes referred to as a bank account levy. When an account is levied, the bank will not allow you to remove money from your account. You can put money in but you can not get it back. As with garnishment, both creditors and the government can levy an account. Creditors must sue in court and be named as a judgment creditor to enforce bank account levies.
Creditors must sue in court and be named as a judgment creditor. At that point, the creditor can seize funds within your account. The government can freeze an account without a court hearing.
Federal law
limits the amount that can be garnished to 25% of your net income (take-home pay) or 30 times the federal minimum wage ($217.50 at time of writing), whichever is less. If you owe student loans, your garnishment is limited to 15% of your net income. Certain federal benefits, such as Social Security and Veterans’ benefits, are also protected by law, making them non-garnishable."
If you're curious about the specifics, you might want to know
what percentage of debt is typically accepted in a credit card settlement. Child support and alimony garnishment range from 50% to 65% of your net income, depending on your situation. There are legal ways to recover at least living expenses. Contact the court immediately.
Retirement accounts like 401ks and IRAs have special protection from creditors and debt collectors. Under federal law, 401ks and other ERISA-qualified plans cannot be garnished by creditors. IRAs also receive protection up to $1 million (adjusted for inflation) under federal bankruptcy law. Some states provide additional protection for IRAs outside of bankruptcy.
If you are facing collections or judgments, be sure to maximize contributions to retirement accounts to shield assets from creditors. Talk to a financial advisor about the best retirement account strategies for asset protection.
Another option is to place funds into an exempt asset protection trust. These trusts are designed so that the assets are not legally owned by you, preventing creditors from seizing them. The assets are controlled by an independent trustee.
To be effective, these trusts must be set up before any judgments or collection actions are initiated. Transfers of assets to the trusts after that point could be reversed. Proper trust drafting is essential to ensure the trusts withstand legal challenges.
When moving assets to protect them from creditors, it is important not to make fraudulent transfers. Under the Uniform Fraudulent Transfer Act adopted by most states, transfers made with actual intent to hinder, delay, or defraud creditors can be reversed. Even if that intent cannot be proven, transfers made while insolvent or that render you insolvent can also be reversed.
Consult an attorney before transferring or hiding assets to fully understand fraudulent transfer laws in your state. Attempting to shield assets could backfire and eliminate exemptions you would otherwise be entitled to.
There are a number of sources of income that are protected by law. These include:
Keeping these funds separate from non-exempt income will help protect these funds from garnishment or levying.
Each state has different laws that govern wage garnishment for both consumer and government claims. Always double check the laws with your state as laws change frequently. An * indicates that all or some garnishments are suspended in that state.
States with variable exemptions, based on whichever amount is greater. Indicate that some or all garnishments are suspended:
Some states offer levy protection, meaning that all or some of the money in an account is protected.
States protecting $1,000 or less, unless federally protected and you can prove the provenance of the money
States protecting $1,001 - $4,999, unless federally protected and you can prove the provenance of the money
State protecting over $5,000, unless federally protected and you can prove the provenance of the money
The answer to this question does not have a simple answer. First, it depends on the state laws and the individual bank’s regulations. You may be required to be a resident of that state or work in that state.
The other concern is the legality of moving money knowing that your accounts may be levied or garnished. In some cases that can be considered fraud or fraudulent conveyance. Before you move money, ask a qualified lawyer or CPA for advice.
If you'd like some other ideas, check out
How To Open a Bank Account That Cannot Be Levied.
Filing for bankruptcy is one way to protect your wages and bank accounts from garnishment and levies. Under bankruptcy law, an automatic stay goes into effect when you file your petition. This prevents creditors and debt collectors from garnishing your wages or levying your bank accounts while your bankruptcy case is pending.
In Chapter 7 bankruptcy, eligible debts like credit cards and medical bills are discharged. This eliminates the creditors' ability to garnish wages or levy bank accounts for those debts going forward.
In Chapter 13 bankruptcy, you enter into a 3-5-year repayment plan to pay back some or all of your debt. Creditors are prevented from garnishing wages or levying bank accounts as long as they stay current on the Chapter 13 plan payments.
Talk to a qualified bankruptcy attorney to see if filing Chapter 7 or Chapter 13 bankruptcy could help protect your wages and bank accounts from creditors.
If a creditor has already obtained a judgment against you, they may have placed a judgment lien on your property. This gives them the right to seize and sell your property to satisfy the judgment.
Consult a lawyer to determine your options for removing a judgment lien against your property. Getting the lien removed eliminates a creditor's ability to seize your assets.
You may be able to open an account in another state, but you would likely need to be a resident of that state. Also, be cautious of potential fraudulent transfer issues if you move assets specifically to avoid creditors. Consult an attorney before attempting to shield out-of-state assets from creditors.
Ignoring a garnishment order will not make it go away. The bank is legally required to freeze your accounts when they receive the garnishment order from a creditor. Not responding only hurts your position, as the bank will likely turn over funds after a period of time. Make sure to act right away if your accounts are garnished.
A wage garnishment order generally lasts until the debt is paid off or for a limited period of time defined by state law, such as 120 days. However, the creditor can continually renew the garnishment order to keep garnishing wages until the debt is satisfied.
Yes, you may be able to stop a garnishment order if there were procedural defects or if you can prove financial hardship. You can also request the garnishment amount be reduced by the court. It's best to seek legal help to properly raise objections to a wage or bank account garnishment.
Most forms of disability income are exempt from creditors and cannot be garnished in a bank account. Exceptions include child support payments and federal student loans, which may permit limited garnishment of disability benefits.
Facing garnishment or bank levies can be financially and emotionally challenging, but it's not a battle you're in alone. Federal and state laws offer protections, and there are strategic steps you can take to safeguard your assets. By understanding your rights, keeping exempt and non-exempt funds separate, and consulting with a professional when necessary, you can navigate these challenges more effectively.
Remember, the key to protecting your finances lies in being informed, proactive, and ready to explore all available options. If you're overwhelmed, consider reaching out for a free consultation to explore your best course of action. Stay informed, stay protected, and take control of your financial future.
If you are struggling with overwhelming student loan debt and want to explore relief options, Pacific Debt Relief offers a free consultation to assess your financial situation. Our debt relief specialists can provide objective guidance to help find the right student loan debt solution.
*Disclaimer: Pacific Debt Relief explicitly states that it is not a credit repair organization, and its program does not aim to improve individuals' credit scores. The information provided here is intended solely for educational purposes, aiding consumers in making informed decisions regarding credit and debt matters. The content does not constitute legal or financial advice. Pacific Debt Relief strongly advises individuals to seek the counsel of qualified professionals before undertaking any legal or financial actions.
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