- UpdatedMay 31, 2023
- Most debt collectors need to sue you and get a court order to take money from your bank account.
- Some creditors like the IRS, however, can levy your bank account without a court order.
- Your own bank can take money from your account if you also have a loan with it and are in default.
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 is no mistake – one of your creditors cleaned you out!
Is this legal? Or did someone overstep? Can debt collectors take money from your bank account?
Unfortunately, the answer is sometimes yes.
When Can Debt Collectors Take Money From Your Bank Account?
The good news is that most debt collectors cannot just contact your bank and take your money. In most cases, they must file a lawsuit, and they have to win. Once a debt collector wins its lawsuit, it becomes a judgment creditor.
At that point, if you have not taken steps to satisfy the judgment or agreed to a payment schedule to repay the debt, the judgment creditor can request an order directing the bank to freeze your bank account. When a judgment creditor presents your bank with this court order, it must comply.
This act of freezing your bank account and taking your money to satisfy a judgment creditor is called a garnishment, a levy, or an attachment of your bank account.
When Can Creditors Garnish Your Bank Account Without a Court Order?
Some creditors do not have to sue you to take money from your bank account. Government agencies like the IRS and the US Department of Education just have to provide you notice of the intent to garnish or levy. Other federal and state agencies may also be able to freeze your bank account for obligations like unpaid child support.
Finally, your own bank or credit union might be the culprit. Banks or credit unions can take your money from an account to cover a loan with them if you’re behind on your payments. The legal term 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 agreement you sign. Credit unions might have more freedom to garnish your account than banks. For instance, they might be able to take funds for past-due credit card debt when a bank would not be able to do that. Banks or credit unions might even be allowed to apply the right of offset to a joint account that you have with someone else.
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How to Avoid Bank Account Garnishment
If you have reason to fear bank account garnishment, take steps now to prevent it.
1. Keep your head out of the sand
Bank account garnishment shouldn’t be a surprise. You know when you can’t pay your bills and start missing payments. And ignoring the consequences just makes them worse. So don’t throw away notices from creditors even if they make you queasy. Stay in contact and arrange an affordable repayment plan with your creditors.
If you don’t get sued, you avoid most kinds of garnishment. And if you do get sued, show up in court. Even if you know that you’re going to lose. You can’t ask for an affordable payment plan if you don’t make your case.
Similarly, the IRS and other government agencies will provide notice that they intend to levy your bank account before they do it. If you don’t throw away those notices unread, you’ll know what’s happening and can take steps to avoid garnishment.
2. Don’t borrow where you bank
When you look for a mortgage, auto loan, or other financing, don’t borrow from the same institution that houses your savings. What if it’s too late for that? If you have a loan that’s going sideways, open an account elsewhere, transfer your money to the new account and stop direct deposits to the old one before it’s too late.
3. Protect social security deposits
Treasury Department rules require banks to review any account subject to garnishment. Banks usually can't freeze social security benefit deposits without ensuring you have access to two months of benefits. There are exceptions, including garnishment for past-due child support and federal taxes. However, if your social security money is mixed in with other deposits in the same account, or if you have more than two months of deposits, your account isn’t 100% safe from a levy.
4. Open an account that creditors can’t garnish
Certain types of bank accounts cannot be garnished, depending on the state in which you bank. For instance, in a few states like Florida, the joint bank account of spouses cannot be garnished by the creditor of one of the spouses. (If both spouses owe that creditor, there is no protection.) It also pays to know the laws in your state covering protected deposits.
Some states prohibit bank account garnishment entirely. However, most (but not all) banks in these states will not accept out-of-state customers, so that’s little help unless you live in one of those states.
How long does it take to garnish a bank account?
The language in bank and credit union deposit agreements varies. Still, most institutions state that they can exercise the right of offset once a loan becomes “past due” or that they will exercise their right under applicable state law. So an offset could happen as soon as you miss a payment, and you will probably not get a warning.
For garnishments involving a court order, the judgment creditor must file the request for garnishment, and the courts typically issue the order within a few days. At that point, the creditor can present it to your bank and freeze your account. This usually is one to two weeks from when the creditor requests the order. Neither the creditor nor the bank has to give you any notice that a garnishment is in process.
Can your savings account be garnished completely?
Can creditors totally clean you out? That depends. Most states have some protections. For instance, banks and creditors may not be able to garnish social security payments, retirement accounts, or take all the funds in a savings or checking account. And a few states disallow bank account garnishment altogether.
How often can your bank account be garnished?
A creditor can make repeated requests for bank account garnishment until you repay all you owe. For that reason, you’ll want to stop all automatic deposits to accounts subject to bank levy or garnishment.
Can you stop a bank garnishment?
If your bank account is frozen, dispute the levy as soon as possible. Your account will remain frozen until the dispute is resolved, but the creditor won’t get your funds if your dispute is valid. Reasons for disputing a bank garnishment include:
Error: you don’t owe the money
The statutes of limitations have passed, and the debt is uncollectible
The creditor is already garnishing your wages
Some or all funds in your account are exempt under federal or state law
You’re a victim of identity theft, and the past-due account is not yours
Other ways to stop a bank garnishment include filing bankruptcy or settling with the creditor for an amount or payment that you can afford.