No, a creditor typically cannot take all the money in your bank account, even if they have a judgment against you. While they can seize a significant portion of your funds through a legal process called a bank account levy, many state and federal laws protect certain types of income and funds from being taken.
Understanding Bank Account Levies
A bank account levy, also known as a bank garnishment, is a legal action that allows a creditor to directly withdraw funds from your bank account to satisfy an unpaid debt. This usually happens only after a creditor has sued you for an unpaid debt and obtained a court judgment against you.
Key points about a bank account levy:
- Court Order Required: Creditors generally cannot just take money from your account without a court order. They must first win a lawsuit against you and obtain a judgment.
- Direct Withdrawal: Once a levy is in place, your bank is ordered to freeze and turn over funds from your account to the creditor.
- Limited Access: With an account levy in place, you may find yourself unable to access all your funds, as the bank holds or transfers the amount specified in the levy order.
Funds Protected from Creditors (Exemptions)
Not all money in your bank account is fair game for creditors, even with a judgment. Various federal and state laws protect specific types of income and assets from being seized. These are known as "exemptions."
Common types of funds that are often exempt include:
- Social Security Benefits: Including retirement, disability (SSDI), and Supplemental Security Income (SSI).
- Veterans' Benefits: Payments received from the Department of Veterans Affairs.
- Public Assistance Benefits: Such as welfare, food stamps, and Temporary Assistance for Needy Families (TANF).
- Unemployment Benefits: Payments received when you are unemployed.
- Workers' Compensation: Benefits for injuries or illnesses sustained at work.
- Disability Benefits: Payments from a long-term or short-term disability policy.
- Child Support and Alimony: Payments received for the support of children or a former spouse.
- A Portion of Wages: Federal and state laws protect a certain percentage of your wages from garnishment, ensuring you have enough to live on.
How Exemptions Work:
When a bank receives a levy order, it is typically required to review your account for federally protected benefits. If such funds are identified, the bank is generally obligated to protect them from the levy. However, you may need to proactively assert your rights by filing a claim of exemption with the court to protect other types of exempt funds or to prevent the seizure of funds the bank didn't identify as protected.
What Happens During a Bank Account Levy?
When a creditor initiates a bank account levy, the process typically unfolds as follows:
- Judgment: The creditor obtains a court judgment against you for the unpaid debt.
- Writ of Garnishment/Execution: The creditor obtains a writ of garnishment or execution from the court, which is an order for your bank to freeze funds.
- Bank Notification: The bank receives the writ and typically freezes your account or the amount specified in the order. You might not receive prior notice from the creditor or court; often, you only find out when you try to use your account and realize funds are inaccessible.
- Review for Exempt Funds: The bank reviews your account for certain federally protected funds (like Social Security). If found, these are often protected automatically.
- Funds Transferred: After a holding period (which varies by state) and resolution of any exemption claims, the non-exempt funds are turned over to the creditor.
Protecting Your Funds from Creditors
If you are facing debt collection or a potential bank account levy, consider these steps:
- Understand Your Rights: Familiarize yourself with federal and state exemption laws.
- Monitor Your Accounts: Keep an eye on your bank accounts for any unusual activity.
- Claim Exemptions: If your account is levied, promptly file a claim of exemption with the court, detailing which funds are protected and why.
- Seek Legal Advice: Consult with an attorney specializing in consumer debt or bankruptcy. They can help you understand your options, including negotiating with creditors, disputing debts, or filing for bankruptcy protection, which can halt collection actions.
- Direct Deposit of Exempt Funds: If possible, consider having exempt funds directly deposited into an account that only contains those funds to make them easier to identify and protect.
