Can a Checking Account Be Seized by a Collection Agency?

A collection agency enforcing the payment of a debt can seize the checking account of the debtor once it obtains a court order. How much money can be taken depends on state laws, and the collection agency must follow the legal steps for seizure. A collection agency that fails to follow proper procedure can be fined and incur liability to the debtor.

Function

The creditor must go to court and obtain a money judgment, or court award, against the debtor prior to account seizure. The creditor then assigns the debt to a collection agency. The agency applies to the court for the authority to seize assets of the debtor to enforce payment. The collection agency searches for the debtor's bank accounts, usually by issuing writs of execution on the banks near the debtor's work or home. A writ of execution is a court paper giving the creditor permission to take the debtor's assets for the amount due.

Effects

Once the collection agency finds a checking account in the debtor's name -- joint checking accounts are also affected -- the order freezes the account. The debtor cannot withdraw money or access the account until the bank lifts the freeze at the direction of the creditor. All or some of the money in the account is taken, depending on the total debt, the amount of money in the account and area laws.

Considerations

Some states have laws that prohibit a private creditor from taking money from an account than has less than a certain amount. The Exempt Income Protection Act, a New York law that went into effect in 2009, prohibits the seizure of bank accounts with less than $1,740, and both California and Connecticut have similar protections. Indiana exempts the first $100 of any funds from an account seizure.

A bank that receives an order to seize an account can charge fees for items like checks that bounced because of the freeze, causing the account to have a negative balance. Bank fees to process the seizure paperwork are charged to the account.

Exemptions

Federal law prohibits private creditors from taking exempt funds, such as Social Security and unemployment benefits, from a checking account. A collection agency that seizes a checking account with exempt funds must return the exempt money to the account holder once she provides proof to the agency the money is exempt, such as a deposit log.