States That Don’t Allow Bank Account Garnishment – If a bank account only holds a tiny quantity of money. Several states don’t permit bank account garnishments. South Carolina, Maryland, North Dakota, New York, and New Hampshire are some of these states. Even fewer governments totally forbid creditors from taking money from bank accounts, regardless of the balance.
To withdraw $100 from your bank account. You go to an ATM. But none of your money is available to you. Your bank account has been frozen, you discover later.
A court order obtained by a debt collector against you is frequently the reason why a bank bans your access to the account. The bank must freeze your account in accordance with the court order for the debt collector to be able to obtain the funds necessary to pay your past-due debt.
Read on to learn how to lessen or prevent the financial consequences of a frozen bank account if you ever find yourself in a situation similar to this or if you want to make sure it never does.
Your Bank Account and How a Debt Collector Gains Access
A legal procedure known as garnishment gives a debt collector access to your bank account. If you don’t pay one of your bills, the creditor or the debt collector they engage may get a court order to freeze your bank account and take money out to pay the debt. A garnishment is a legal term for the court order itself.
The court order typically follows a debt collector filing a lawsuit against you, which results in a judgement against you. Credit card debt, vehicle loan debt, personal loan debt, medical debt, and mortgage debt are just a few of the debts that could be impacted.
A debt collector may be able to garnish your earnings in addition to your bank accounts. When a debt collector obtains a court order instructing that your employer deducts money from your paycheck to pay off an overdue obligation, this occurs.
Wage garnishment for consumer debt is prohibited in North Carolina, Pennsylvania, South Carolina, and Texas. A debt collector can still effectively garnish your income if you reside in one of those states, though, by taking money out of your bank account. Your earnings are no longer regarded as earnings once they have been put into your bank account. Because of this, a debt collector might be able to access your account and withdraw funds, including cash from your paycheck.
What Amount Can a Creditor Take from Your Account?
States That Don’t Allow Bank Account Garnishment, your state of residence will determine how much money a debt collector can deduct from your account.
For instance, a consumer’s bank account in New York is immediately shielded from garnishment for debt collection if it contains between $2,664 and $3,600. In California, the amount, which is updated annually for inflation, was $1,788 as of September 2020. Delaware, meanwhile, prohibits the garnishment of bank accounts.
In a number of other states, a person can use a “wildcard” exception to avoid having their assets, including their bank accounts, garnished. Examples of these exemption amounts, according to the National Consumer Law Center, include:
- Florida ($5,000)
- Illinois ($4,000)
- Maryland ($6,000)
- Nevada ($10,000)
- North Carolina ($5,000)
- South Dakota ($7,000)
- Tennessee ($10,000)
- Virginia ($5,000 plus $500 per dependent)
- Washington ($2,000 of a $3,000 wildcard exemption can be applied to a bank account)
A debt collector may demand money in addition to the initial debt in order to pay court fees and other expenses.
What is Restricted from Your Account by a Debt Collector?
States That Don’t Allow Bank Account Garnishment – Except for the payment of back taxes, alimony, child support, or student loans, many government benefits cannot be removed through garnishment. Which state benefits can be garnished may depend on your state’s legislation.
Federal benefits are generally protected from garnishment, according to the Federal Trade Commission, barring the payment of back taxes, alimony, child support, or student loans. These benefits include:
- Social Security benefits
- Supplemental Security Income benefits
- Veterans benefits
- Federal student aid
- Military annuities and survivors’ benefits
- Benefits from the federal Office of Personnel Management
- Railroad retirement benefits
- Federal emergency disaster assistance
What Happens if You’re Sued by a Debt Collector?
Make sure to respond as soon as possible, either on your own or through an attorney, if a debt collector sues you. This may require submitting a written answer or turning it up in court, according to the Federal Trade Commission.
In addition, analyse your financial records about the debt, and read through the complaint. Check the lawsuit for any mistakes, such as an estimate of your debt that is off by a certain amount.
Have problems understood the legalese and where to go from here? You may want to seek the counsel of a legal aid service or an attorney.
Protection and garnishment for business bank accounts
An individual judgement debtor may be able to successfully escape a bank account garnishment of personal funds by using a business bank account. A person who owns a business can keep funds in their business rather than distributing the funds to themselves.
The bank account of the business cannot be directly garnished if the creditor has a judgement against the person and not the company. Instead, the creditor must focus its collection efforts on the debtor’s ownership interest in the business.
The debtor’s corporation shares could be levied by the creditor. If the company is a partnership or a multi-member LLC, a charging lien on any distributions made to the judgement debtor by the LLC would be the judgement creditor’s only recourse in Florida. The creditor receives nothing if the LLC doesn’t pay any distributions.
States That Don’t Allow Bank Account Garnishment – A multi-member LLC or partnership bank account may occasionally be accessed by the judgement debtor without a distribution being made by the LLC. The options are determined by the text in the partnership agreement or LLC operating agreement.