Nearly all of us have had trouble paying bills at one time or another. Some of us have even experienced debt collection, a scenario in which unpaid debts are referred to collection agencies. Collection agencies have a variety of tools they can use to extract payment. Bank account garnishment is one of the more effective tools when debts go unpaid for too long.
Yes, collection agencies can take money from your bank account. They can also freeze your account, preventing you from withdrawing any money until your debt has been settled. However, there are legal safeguards in place. Collection agencies cannot arbitrarily take every penny you have by fully draining your bank account.
It Starts with a Judgment
Whether you are talking wages or a bank account, garnishment is a legal process that must be initiated by a court. Imagine a private lender in Salt Lake City, UT looking to extract payment from a debtor who defaults on his loan. Even after liquidating the collateral originally offered by the debtor, the debt is not fully satisfied. So the lender enlists the help of Judgment Collectors.
Before the debt collection agency can do anything, there must be legal recognition of the debt in question. So the lender and its attorney head to court for a civil lawsuit. Should they win their case, a judgment will be entered in their favor. A judgment is a legal recognition that the debt in question is legitimate and must be paid. Now Judgment Collectors can go about enforcing the judgment as needed. They can turn to bank account garnishment if they decide it is the best course of action.
State Laws Differ
Most states (but not all) tend to place limits on bank account garnishment. For example, New York law prevents the garnishment of up to $3600 from a consumer’s bank account. In Florida, the limit is $5000 while Washington prohibits creditors from garnishing bank balances of up to $3000.
The point of these limits is to prevent collection agencies from not allowing debtors to pay their other bills by completely draining their bank accounts. Debtors have to be left with something to cover other expenses.
Bank account garnishment is especially attractive in states that do not allow direct wage garnishment. Currently, there are four states that do not allow wage garnishment: Pennsylvania, Texas, and both Carolinas. However, the law does not recognize wages as such once they are deposited into a bank account. Once deposited, wages are just money. They are subject to bank account garnishment.
How It Works
The process required to initiate bank account garnishment is pretty straightforward. The first thing to note is that creditors cannot garnish bank accounts on their own. They need a legal order giving them the necessary authority. That legal order is the direct result of a successful judgment entered against the debtor.
With a court order in place, the creditor or its agent serves the debtor’s bank. The bank is legally obligated to freeze the debtor’s account and transfer all qualifying funds to the creditor or its agent. The garnishment order remains in place until the debt has been satisfied.
Note that there are certain types of bank accounts and assets that cannot be garnished. For example, creditors cannot garnish IRAs, 401(k) accounts, or pension accounts. They also cannot garnish accounts that hold Social Security benefits, veteran’s benefits, and other types of government benefits.
Yes, a collection agency can take money from your bank account. It must follow strict rules to do so, but bank account garnishment is still an option, nonetheless.