Bank Garnishment vs. Wage Garnishment

If a lawsuit ends in a judgment for the plaintiff, the defendant owes money. If the defendant doesn’t pay the judgment, the plaintiff may take the money.

A plaintiff has options to take the money from the defendant: bank and wage garnishment.

What is a Bank Garnishment?

A bank garnishment occurs when a person’s account is seized or frozen. The plaintiff, considered a creditor, attempts to take the money in the defendant’s account to cover the debt. The defendant can’t withdraw or deposit money or write checks. The creditor also takes direct deposits. The account remains frozen until the creditor has recovered the entire debt in some instances.

Bank garnishments happen if you haven’t repaid debts such as medical bills or unpaid taxes. Your bank is not required to notify you of an account garnishment unless the garnishment overdraws your account balance. Depending on your state, you may have rights and protections against having your bank account garnished.

Bank account garnishment means that a collection agency can legally remove money from your account to repay outstanding debt. When debtors ignore requests or cannot pay back what they owe, garnishment is usually the last resort that creditors turn to. Loan companies won’t take the legal steps required to garnish a debtor’s bank account unless they have mailed notices and made phone calls to settle the debt.

A creditor needs to win a judgment in order to garnish your account. The lender must file a lawsuit, which requires an attorney to deliver notice to both the borrower and the court. To begin withdrawing funds from a debtor’s account, the creditor needs an order or writ of garnishment signed by a court official. The IRS is the only creditor that can garnish money from a bank account without a judgment.

Can My Bank Account Be Garnished Without Notice?

Once a court approves a garnishment, the creditor will notify you before contacting your bank and beginning the actual garnishment. However, the bank has no legal obligation to inform you when money is withdrawn due to garnishment. You may receive an automated overdraft notification if the garnished amount is more than what’s available from your account balance. The garnishment notification should come from your creditor, not your bank.

After your bank is notified of the garnishment, it must follow the court order before honoring any other transactions you have made. Federal law states that individuals who receive federal benefits will have their last two months’ worth of deposits reviewed to determine exempt ones. If you believe your bank account may be garnished, notify your bank of these transactions to ensure the funds are properly exempted and contact a bankruptcy lawyer.

What Happens When My Account is Garnished?

When a creditor garnishes your bank account, money that isn’t exempt from the garnishment is frozen and seized. Some banks may charge fees if the creditor attempts to withdraw more money than you have in your account. Even if you have full overdraft protection, the bank may be legally obligated to fulfill the transaction until the garnishment is satisfied. Some banks also charge for separate additional garnishments.

Depending on your state’s laws, account garnishment doesn’t necessarily mean the loss of your entire balance. State laws on bank garnishment vary. Most states impose a garnishment limit based on a percentage of your disposable income. These laws ensure that debtors will keep enough money to meet their living expenses, but certain types of income are specifically protected against garnishment. Direct deposits from federal benefits, such as Social Security, are protected to some degree in every state, for example.

How is Wage Garnishment Different?

With a wage garnishment, the creditor deducts money from your paycheck. Approximately 25 percent of a person’s paycheck can be turned over to the creditor until the debt is satisfied. The deduction is made after all taxes are subtracted from the check.

Is My Overtime Pay Safe From My Creditor?

No. The amount will be deducted from the total sum of the check. Thus, a person may have a portion of overtime pay taken and given to the creditor. A bank garnishment is different. Some money deposited in the bank is off-limits like:

• Retirement
• Pension pay
• Government benefits
• Child support payments
• Money from student loans
• Unemployment insurance claims

Whether overtime would be seized through a bank garnishment depends on your state’s laws.

What Can I Do When My Account Is Garnished?

To lift a garnishment, you can try to contact the collection agency to negotiate an alternative payment plan. You may be able to lower interest payments or reduce the amount you owe. You can negotiate partial payments for a certain amount of time. You will have more bargaining power if you reach out to your creditor before a court makes a judgment. It’s in your best interest to prevent an account garnishment from occurring in the first place.

You can challenge the judgment in a case where a garnishment is made in error. If the garnishment was improperly executed or poses a serious financial threat to you, you can challenge it. If you decide to challenge the garnishment, seek help from an experienced attorney and act quickly. You may have only up to five business days to challenge your garnishment.

Filing for bankruptcy can stop a garnishment, but bankruptcy should be considered a final resort. When you declare bankruptcy, an injunction goes into place that stops most collectors from calling, sending letters, or filing lawsuits and garnishments. The creditor filing the suit against you may ask the court to lift the injunction after you file for bankruptcy, but only under very special circumstances does this mean you’ve discharged your debt. You may still owe money after filing for bankruptcy.

Are Government Benefits Protected from Garnishment?

Many types of federal and state benefits are protected from garnishment. Examples of federal and state benefits protected from garnishment include Social Security, Supplemental Security Income, and veteran’s benefits. These benefits may be protected, no matter how much you receive. States usually exempt Temporary Assistance for Needy Families and unemployment benefits from garnishment. Child support obligations are not protected from garnishments.

A creditor can get a court order seizing money from any of your bank accounts to repay a judgment, but certain federal benefits deposited in your bank account are protected. The bank is prohibited from turning over any Social Security, SSI, or VA benefits deposited in your account within the last two months. Social Security, SSI, or VA benefits deposited into your account more than two months beforehand are also protected, but the protection is not automatic. You usually must fill out papers and go to court if you need to protect more than the last two months of your benefits.

Can I Get My Money Back From a Bank Account Garnishment?

Yes, it depends on the type of money and state law. For instance, if a creditor freezes a bank account with government payments deposited, the defendant can make sure exempted money isn’t frozen too by showing:

• Payment stubs
• Statements from government agencies
• Receipts

Do I Need a Lawyer to Help Me With My Garnishment?

Yes, a collection lawyer will help you fight or avoid any type of wage or bank garnishment. They can provide you with the guidance needed to complete your claim. In the event of lawsuit, they can also provide representation in a court of law.