Friday, August 1, 2003

Can a Bank Legally Take Money From Your Checking Account If You Owe on an Unsecured Debt?

Bank account garnishment --- also called bank levies --- occur when the account holder defaults on debt repayment. Unsecured debt is a loan or revolving account of credit not backed by collateral. When a bank takes money from your checking account to repay unsecured debt, it does so under a court order, not at the request of a creditor. Dependent on state law, withholding amounts may be limited or prohibited completely.

Facts

    Excluding South Carolina, Pennsylvania and North Carolina, most states allow some type of garnishment for unsecured debt. Texas does not allow wage garnishment for most consumer debt but it does permit bank levies. A bank levy occurs as part of a lawsuit initiated by the creditor. The court process involves proving liability, establishing the debtor's ability to pay and ultimately ordering repayment. You have time to appeal the decision or claim exemptions before removal of funds, but the account may be "frozen" during the interim.

Exemptions

    Most types of federal assistance income and certain retirement accounts are exempt from levies and garnishment for most unsecured debt. Government funds include but are not limited to Social Security benefits, veterans pay, civil and federal retirement funds, disability benefits, student aid and various state or federal assistance programs. On the other hand, government funds may be used to pay for child or spousal support, back taxes, student loans or other government debt. Prevent or lift a bank levy by notifying your bank, creditors and the court with proof of exemption from garnishment.

Defense

    Reply to a court summons when a credit card company or other lender initiates a lawsuit. Failure to defend or answer a summons results in a judgment against you. Defense against garnishment depends on your situation but reasons may include denial of liability, claiming the summons was served improperly, identity theft, incorrect debt amount and statute of limitations. Proving that you have tried to pay the debt or paid some of it and claiming financial hardship may prevent a bank levy. Valid debt remains but the judge may order repayment instead of a levy.

Joint Accounts

    In cases of joint credit card holders, creditors may go after either account holder. With the exception of married couples in community property states, authorized credit card users are not responsible for debt. However, the court may place a levy on a jointly held checking or savings account. You may file a claim stating all or part of the money belongs to the other account holder or open separate accounts until the matter is resolved.

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