How to Open a Bank Account That No Creditor Can Touch

How to open a bank account no creditor can touch
BY Peter Warden
Sep 13, 2022
 - Updated 
Jul 18, 2024
Key Takeaways:
  • Creditors can levy (garnish) your bank account if you owe them money.
  • Creditors must usually sue you to garnish your bank account. However, your bank may garnish your account without notice if you also default on a loan with that bank.
  • There are four tactics for protecting deposits from creditors.

When a creditor or a debt collector you owe overdue money garnishes or “levies” your bank account, that account is effectively frozen. Except for a few exceptions, you can pay money in, but you can’t take it out. 

That’s devastating for most of those who find themselves in that position. And life can be impossible for the many who don’t defend the court case during which a garnishment order is made. 

In most states, if you don’t ask the court for exceptions for necessary expenses such as food, rent, utilities, and commuting costs, you won’t get them. And you may be left destitute. 

Still, if you think you might one day need protection from a garnished bank account, you can take steps to avoid the consequences. And perhaps the most effective of those is to open a bank account that no creditor can touch.

How Does Bank Garnishment Work?

A few government departments – most often the Internal Revenue Service for tax debt and the Department of Education for student loan debt – can garnish your bank account without a court order. 

And, sometimes, your bank has a “right of offset” that allows it to raid some of your accounts to regularize others, all within the same bank. So it could, for example, take money from your certificates of deposit (CDs) to bring your checking account back below its overdraft limit. 

But other private-sector debt collectors can’t touch your bank account without a judge’s consent. Once the judge makes a ruling, they may be called judgment creditors.

They must go to court to prove that you owe the money claimed and that you’re failing to make payments per the terms of your loan agreement. The judge will likely issue the requested garnishment order if they do that.

Four strategies to open a bank account that no creditor can touch

There are bank accounts that are protected from creditors. To keep creditors from getting their hands on your money, consider using the following four strategies:

  1. Keep your money in a qualified retirement plan. These include employer-sponsored plans such as 401(k) and 403(b) plans. Qualified retirement plans are protected from creditors by federal law. Note that individual retirement plans, such as Roth and traditional IRAs, are not protected from creditors by federal law.  

  2. Research types of protected accounts in your state. For example, IRAs are protected from creditors in some states but not others. There are also states that allow married couples to set up Tenancy by Entirety accounts. These can protect some types of jointly-owned property (typically real estate) from creditors. 

  3. Use dedicated accounts for federal benefits. You can protect government benefits from creditors. The best way to do this is to have the money directly deposited into an account. Then, don’t put any other type of money in that account. These deposits will be protected from garnishment by most creditors. Examples of protected federal benefits include Social Security, veterans benefits and military service member pay. 

  4. Consider offshore bank accounts. These may not be accessible by creditors. However, they often carry risks of their own. Money in these accounts will no longer be protected by US laws. 

It’s best to seek professional advice to protect your money from creditors. Laws can vary state-by-state. Setting up offshore accounts involves an even greater level of complexity. Find a knowledgeable adviser who has experience with the relevant legal requirements. 

What is a bank account freeze?

A bank account freeze is as bad as it sounds. Money can still flow into the account. But you can’t take much or sometimes any out. 

If requested, a judge will often allow you to access limited funds for essentials, according to the applicable state law. But caps were often written into those laws years ago and are unrealistic. Most states allow less than $1,999 to be shielded. Check your state caps.

Note that only seven states provide these protections automatically. Elsewhere, you’ll get them only if you or your attorney turn up to court on the day to request them.

There are a few forms of income that a creditor can’t garnish. For example, federal benefits, such as social security, disability, and VA, are exempted automatically. If your bank tries to freeze those, tell it to stop and show it documentary proof of the size and nature of the affected funds. 

Beyond that, don’t expect your bank to do you any favors. It’s legally obliged to strictly observe the judge’s order and will be in contempt of court if it doesn’t. 

How long does bank garnishment take?

The time to garnish a bank account varies widely. It depends on how quickly the creditor brings in attorneys. Some act swiftly, instructing lawyers within months of defaulting. Others can wait years.

Then, much will depend on how significant the backlog of cases is in the court that will hear the matter. Waiting times can be long in most courts. 

Legal website Ejudicate notes: “The consensus amongst legal professionals is that it is very unlikely that the courts’ backlog will be cleared anytime in the foreseeable future. Troublingly, many agree that court systems are broken beyond repair and that Covid was the straw that broke the camel’s back.”

Once a hearing date is set, you should attend or find an attorney to represent you. Otherwise, the judge will likely issue a default judgment against you without checking that the claim is correct or isn’t time-barred. 

A 2020 Pew report found: “Over the past decade in the jurisdictions for which data are available, courts have resolved more than 70 percent of debt collection lawsuits with default judgments for the plaintiff. Unlike most court rulings, these judgments are issued, as the name indicates, by default and without consideration of the facts of the complaint — and instead are issued in cases where the defendant does not show up to court or respond to the suit.”

When your bank receives a court order of garnishment, it usually takes a week to 14 days to implement. Once in place, you won’t be able to withdraw funds, and any checks you write (or have written) should be bounced, leaving you with Not Sufficient Funds fees.

How much can creditors take from your bank account?

Creditors can take the sum ordered by the judge at your hearing. That same Pew Report said, “Courts routinely order consumers to pay accrued interest as well as court fees, which together can exceed the original amount owed.”

How often can creditors garnish your bank account?

Any creditor to which you owe money can apply for a judgment against you and request that your bank account be garnished. So, if you have multiple creditors, you could have multiple garnishments. 

The judgment (and so the garnishment) will expire after the number of years prescribed by your state’s laws. However, your creditor can apply to the court for a renewal order before that happens. 

Of course, if you pay the creditor all that the court ordered (or a lesser amount if it agrees to one), or you and the creditor agree on a payment plan to clear the debt, your creditor should lift the garnishment quickly.

What kind of bank accounts can be garnished?

Many types of bank accounts can be garnished. But it depends on your state’s law. 

Commonly, checking and savings accounts are garnishable, even if they’re joint accounts. But some states exclude joint accounts. 

Read on to learn how to open a bank account that no creditor can touch.

My Bank Account Is Garnished! What Can I Do?

The best time to act is before your account is garnished. 

You could call your creditor to negotiate a repayment plan,  defend your case in court with an attorney, or you could consult a credit counselor

Once you have a judgment against you, it’s hard to get it overturned. And the same applies to garnishment orders. 

Your most likely route to getting your account unfrozen is through your creditor. Call and eat humble pie. Explain your situation with total transparency and try to agree on a repayment plan.

But don’t over promise on that plan. The moment you renege on your promise, the creditor will likely take steps to re-freeze your account. And, next time, it won’t be so sympathetic. 

Can my bank account be garnished without notice?

Yes, if a creditor has the necessary court order. They first have to go through some steps to get that, so you should have some warning. 

To get a court order that allows them to take money from your bank account, creditors generally need to sue you. One notable exception is that the IRS does not need a court order to garnish your account. 

Any other creditor would need to win a court judgment first. When they sue you, you’ll be notified about the court proceedings and have a chance to defend yourself. Even if the creditor wins, they must notify you before garnishing your account. 

After that though, things can happen fast. Once a creditor presents the court order to your bank, the bank might immediately freeze the account so you can’t take any money out. They could then turn the money over to the creditor without any further notice to you. There may be limits on how much they can take.

How to Protect Yourself From Bank Account Garnishment

We’re indebted to Alperlaw for much of the information in this section. Here are some of the best options when you want a bank account that no creditor can touch.

Exempt bank accounts

Open a new account in a state that allows garnishment-exempt accounts. For example, Florida says that an account in the names of “married couples as tenants by entireties” cannot be touched by creditors. 

Of course, you don’t have to live in Florida to open one of those. And such accounts are available elsewhere. Of course, you do need to make sure the state where you hold your account has similar laws governing the garnishing of bank accounts. 

Legal website NOLO says, “Many states allow ownership by tenancy by the entireties, although some restrict this right to just real estate ownership only. You should research the laws of your state to determine if this right is available to you.”

Prepaid card accounts are not exempt from garnishment. But the practical issues in garnishing them mean many creditors won’t bother to try.

States that prohibit bank account garnishment

In theory, bank accounts in Delaware cannot be garnished. But some warn this isn’t the silver bullet others suggest.

For example, The White Coat Investor suggests: “One downside of these “jurisdictional” asset protection techniques (such as Cook Islands or other overseas trusts) is that while the court may not be able to reach the assets, it can reach you. It can hold you in contempt of court and put you in jail until you voluntarily withdraw the assets. So unless you’re willing to move to the Cook Islands (or Delaware), realize this technique is just another obstacle and not necessarily impervious.”

But it’s unlikely a court would hold you in contempt or jail you over the sums that most debt collections involve.

Offshore bank accounts

Presumably, that warning from The White Coat Investor applies to offshore bank accounts as well as those in Delaware. Indeed, creditors may be able to enforce orders in foreign jurisdictions.

However, having an overseas account does raise a significant obstacle to creditors, which could be expensive to overcome. If your debt is $10 million, it might be worth the creditor’s while overcoming the obstacle. If you owe a few thousand, it might not be. 

Wage or government benefit bank accounts

We already mentioned that most federal benefits cannot be garnished other than in exceptional circumstances. However, on a practical level, it can be challenging to differentiate between various deposits to identify which monies are benefits and which are other forms of income. 

If you think a garnishment might be looming, it might be best to open a bank account just for such benefits. If you have those benefits directly deposited in that account and make no other deposits, it’s easy for the judge or your bank to recognize that all the money in it is exempt from garnishment.

In some states, including Florida, a creditor cannot garnish the salary of the head of the household. If you live in such a state, you’ll get the same advantage as you do for federal benefits if you open an account in which only the head of the family’s salary is deposited – preferably directly deposited. You can instantly show that all the funds in that account came from an exempt source. 

Can I Hide My Bank Accounts From Creditors?

Unfortunately, it’s improbable that you’ll be able to hide a bank account from a creditor. If it has any suspicion you have funds squirreled away (and often if it has no such suspicion), it will, on winning a judgment, typically file a “Motion for Examination of Judgment Debtor.”

This forces you to declare all your assets and accounts. And you will answer questions orally or in writing as if you were under oath. In other words, the penalties of perjury (which include jail time) will apply if you lie.

The only way to avoid garnishment is to declare a bank account that no creditor can touch.

Frequently Asked Questions

How do I get a garnishment order overturned?

It’s vanishingly unlikely that you can. Courts rarely reverse debt judgments.

You need to act before the judgment. Negotiate with the creditor to get the hearing called off. Or retain an attorney specializing in consumer debt law to act on your behalf. Or find a reputable credit counselor.

Once the judgment is in place, your only hope is to pay the creditor what’s owed (or a lower settlement sum) or agree on a repayment plan. 

Is there really such a thing as a bank account no creditor can touch?

Yes, certainly. You might be able to open an account in a state that prohibits the garnishment of certain sorts of accounts. But, of course, you must be able to qualify for the protection, most likely by being married and opening a joint account with your spouse.

Having a bank account overseas or in Delaware doesn’t always provide the protection some think. But, if the amount you owe is in the thousands, many creditors won’t want the extra bother or expense of pursuing those. Similarly, prepaid card accounts are hard to monitor and garnish (you can open and close them at will), and many creditors don’t want the hassle of doing so. 

What funds are exempt from garnishment?

Nearly all states exempt a part of your income from garnishment. 

But in most cases, you have to ask the judge at your hearing to apply for exemptions. If you fail, your state’s exemptions may not apply. In some states, the amount exempted is pitifully low. 

Most federal benefits are exempt from garnishment other than in exceptional circumstances, such as when that garnishment is happening because you owe back taxes or late child support payments. 

The problem here is identifying which deposits are federal benefits and which are other forms of income. The easiest way to avoid confusion is to have a separate account in which all your exempt benefits are directly deposited – and only those benefits. That way, anyone can see by glancing at your statements that the account’s contents are exempt.