Can Debt Collectors Take Money From Your Bank Account?

It’s a nightmare scenario: You’re on vacation, or nearly out of gas, or trying to buy dinner for your date when your debit card refuses to work. You call your bank to correct the mistake only to discover that there's no money in your account—because debt collectors took it!

Is this legal? Or did someone overstep? Can debt collectors really take money from your bank account?

Unfortunately, the answer is sometimes yes.

It could happen if you have unpaid debt and don’t get debt relief or otherwise solve the problem. If your creditor then decides to get a court order against you, it is possible to end up in the unfortunate situation of debt collectors taking money from your bank account. 

But this doesn’t happen overnight. Getting money taken from your account by debt collectors shouldn’t be a sudden surprise. Before it happens, you can work with your creditors yourself or with professional help, and stop debt collectors from taking your money. 

Let’s take a closer look at what it means when debt collectors take money from your bank account, and how you can avoid this situation.   

When Can Debt Collectors Take Money From Your Bank Account?

Most debt collectors can't just contact your bank and take your money. In most cases, the debt collector must first file a lawsuit against you—and they have to win.  Once a debt collector wins a lawsuit, it becomes what’s called a judgment creditor. It means what it sounds like. They are a creditor who has a judgment against you. 

At that point, if you don’t pay up, or at least work out an agreement to repay the debt in payments, the judgment creditor can request an order from a judge that tells your bank to freeze your bank account. When a judgment creditor presents your bank with this court order, the bank has to follow the order.

When your bank account is frozen and money is given to a judgment creditor, it’s called a garnishment, a levy, or an attachment of your bank account.

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When Can Creditors Garnish Your Bank Account Without a Court Order?

Some creditors don’t have to sue you to take money from your bank account. Government agencies like the IRS and the Department of Education only have to notify you of their intent to garnish or levy. Other federal and state agencies may also be able to freeze your bank account without a court order for obligations like unpaid child support.

Finally, your own bank or credit union might be the culprit. If you’re behind on a loan with them, a bank or credit union could take money from your account to cover payments. The legal term for this is right of offset or right of setoff. Typically, this right applies to installment loans or mortgages, but not credit card debt. 

When you open a bank or credit union account, the right of offset is spelled out in the account agreement you sign. Credit unions might have more freedom to garnish your account in this way than banks. For instance, credit unions might be able to take funds for past-due credit card debt, though a bank wouldn't be able to. Banks or credit unions might even be allowed to apply the right of offset to a joint account that you have with someone else.

Understanding Court Orders and Bank Account Garnishment

In most cases, before a creditor or debt collector tries to garnish your bank account, they have to go through a multi-step process that could look something like this: 

• The debt collector takes you to court: The first thing they need to do is sue you for the unpaid debt. 

• The debt collector wins the lawsuit: Next, the debt collector actually has to win the lawsuit and secure a judgment against you. If you receive an official letter summoning you to appear in court, plan to be there. If you don’t show up for court, the debt collector gets an automatic win. This is known as a default judgment. 

• The debt collector requests a garnishment order: At this point, the debt collector can request an order from the court to take money from your account. 

• The judge issues a garnishment order: If the judge agrees with the debt collector’s request, the judge writes a court order giving the debt collector permission to take money from your bank account. 

A debt collector has to follow all these steps before they can get access to your bank account. Without a garnishment order, any attempt to pull funds from your bank account is illegal, and could be contested in court. 

If you’ve fallen behind on debts and not shown up for court dates, a garnishment of your bank account may not be a total surprise. But even if you have no idea that your bank account is about to be garnished by debt collectors, you might have one more chance to find out about it before it happens. If a court issues an order to garnish your bank account, there are some situations when the law says they have to notify you:

1. If sometime during the past two months, you received payment of federal benefits that are protected from garnishment, and

2. You also have other money in your bank account that's not automatically protected.

The notice should include details such as: 

• Creditor 

• Type of debt 

• How much you owe 

• What financial obligation the garnishment will fulfill (i.e., unpaid taxes, student loans, child support, alimony) 

• Instructions on how to dispute a garnishment, such as where to file, deadline to file, and what information to include. 

The bank might also send you a court order. Banks sometimes have to do this to follow federal or state laws. You can also ask your bank for a copy of the garnishment order, or reach out to the creditor or court for more details.

How to Avoid Bank Account Garnishment

If you have reason to fear bank account garnishment, take steps now to prevent it. 

1. Face any unpaid debts

If you’ve fallen behind on your bills and have unpaid credit card debts or other overdue debts, it’s easy to feel overwhelmed. But you can treat this moment as an opportunity to improve your financial life. 

Be proactive, and take on your unpaid debts. Reach out to your creditors and talk to them. If you have delinquent credit card debt or other debts that have gone into collections, you don’t have to wait for your bank account to get garnished. You have options. If debt collectors are contacting you, you can ask for an affordable payment plan or other forms of debt relief. 

Staying in contact with your creditors (even if your overdue debt is in collections) could help you get a better outcome. Most creditors don’t want to go through the time and expense of taking you to court. Debt collectors are often willing to work out a plan for your debt that leaves everyone satisfied. 

If you avoid getting to the point where debt collectors take you to court, you can often avoid most kinds of garnishment. And if you do get sued, that’s not the end of the world. Just be sure to show up in court. Consider getting professional help from an attorney or a legal aid organization in your area. Even if the debt is valid, you owe the money, and you fell behind, you could still show up in court and make your case. You might even be able to negotiate an affordable payment plan with your creditor that lets you avoid garnishment. 

If you owe money to the IRS or other government agencies, be proactive and consistent about opening the mail and watching for official communications. The IRS and other government agencies won’t take money out of your bank account without giving you official notice that they’re about to. 

2. Protect your Social Security deposits

If you receive certain types of income like Social Security or SSDI, that money has special protections from garnishment. These are called exempt funds, because they’re typically exempt from garnishment. Before a bank account can be garnished by creditors or debt collectors, the bank has to review the account to determine whether it contains protected funds. Typically, up to two months’ worth of exempt income is protected.  

There are exceptions to this two-month rule. If the garnishment is for past-due child support or federal taxes, your Social Security money within that two-month amount limit could be taken. Your Social Security money might also be garnished if the Social Security benefits are mixed in with other deposits in the same bank account, or if you have more than two months of Social Security deposits in the bank account. 

Either way, if you receive Social Security income, and you need debt relief for seniors, you might want to open a special bank account just for your Social Security money. Keeping your Social Security deposits separate, without intermingling them with other sources of income like paychecks from a job or income from a spouse, might help protect your benefits from garnishment. 

3. Open an account that creditors cannot garnish

There are some types of bank accounts that no creditor can touch, depending on the state where you bank. For example, in a few states, the joint bank account of two spouses cannot be garnished by the creditor of one of the spouses. (If both spouses owe that creditor, there's no protection.) Some states also have specific laws about protected deposits. Some don’t allow debt collectors to garnish wages. There are varying limits on how much money and property is exempt from garnishment. So it’s worth it to check the laws in your state.

Tips to Safeguard Your Bank Account from Garnishment

To stop debt collectors from garnishing your bank account, learn your rights and take certain steps: 

• Avoid keeping large amounts of unprotected cash in bank accounts. Set up a separate account for exempt funds such as Social Security, child support, or disability benefits. Exempt funds are protected by federal law and can't be garnished (except for a few situations described above). 

• Stay informed about your financial situation. If you’re tired of receiving overdue bills and other notices from your creditors, it could be tempting to ignore notices and let the mail pile up. But it’s better to pay attention. Open and read any legal notices or court summons you receive. This helps you avoid surprises and hopefully protect your bank account from debt collectors. 

• Get professional help. If you feel your bank account might be at risk, consider asking an attorney or legal aid clinic to help you navigate the process. You might have options to contest or avoid the garnishment.