Holds are placed on checking accounts through a process called garnishment. Credit card companies and debt collectors commonly use garnishment to collect unpaid debts. However, garnishment is a very serious matter and requires some lengthy steps, including approval by a judge. No one can arbitrarily place a hold on your checking account for debt collection without written permission from a judge. Garnishment is avoidable by responding to court notices and working out a payment plan for the delinquent debt. People with delinquent debt, especially from credit cards, face an increased risk of garnishment if they ignore court notices.
Summons and Complaint
Garnishment becomes a possibility with the delivery of a summons and complaint -- a lawsuit. The summons is a paper document serving as the notification of a lawsuit, while the complaint is the lawsuit. In most states couriers are hired to deliver the lawsuit to you at your home or workplace. The courier can also deliver the summons to you anywhere else but must abide by trespassing laws. The documents are sent by certified mail in some states or left at your home address.
Court Date
The summons usually lists a date to appear in court before a judge, or requests a response to the lawsuit in writing. People who fail to show for the court date or send a response automatically lose the lawsuit to the debt collector. The judge awards a default judgment if you fail to show up in court or respond in writing. The judgment requires you to pay the full amount due for the debt. Answering the suit or appearing in court also leads to a judgment and possible garnishment if the attorney for the debt collector proves the debt is legitimate and you did not pay. Failure to pay the judgment allows the debt collector to request garnishment.
Debit Cards
Garnishment orders are delivered to your bank after the judge signs the legal order -- if the debt collector locates your checking account information. Usually the information is taken from a check you used to make a payment when the account was active. Some people fearful of garnishment maintain multiple checking accounts or have their paychecks and other income placed on debit cards that are not linked to checking accounts.
Frozen Checking Account
Banks receiving garnishment orders freeze accounts without notifying the account holder in advance. The account remains frozen until the garnishment order is lifted -- usually after full payment for the debt or a payment plan or settlement with the debt collector. In the meantime the garnishment order gives the debt collector right to withdraw money from your account to satisfy the debt. Withdrawals are made in a lump sum or in installments. In the meantime you are not allowed to use the checking account in any way except for depositing money.
Bankruptcy
Chapter 7 and Chapter 13, two popular forms of bankruptcy, end garnishment immediately. Many people file for bankruptcy because of multiple checking account garnishments. It is possible to have separate garnishments for different debts. A legal injunction called an "automatic stay" lifts all garnishment orders after you apply for bankruptcy. However, bankruptcy information remains on credit reports for 10 years, making it difficult to receive credit at favorable terms, at least for a while. Working out a payment plan with the debt collector is usually a better option.
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