Can a Creditor Garnish Your Bank Account While in Bankruptcy?

Creditors and debt collectors use civil courts to obtain the right to garnish bank accounts for unpaid debts. Garnishment orders are among the most powerful weapons available to a creditor seeking to collect a debt. Banks quickly comply with garnishment orders, by allowing creditors full access to the debtors accounts. However, creditors cannot garnish a debtors account once the debtor is receiving protection under federal bankruptcy laws.

Considerations

Creditors seeking money from a debtor in bankruptcy must seek payment through federal bankruptcy courts. While the debtor is in bankruptcy, creditors and debt collectors may not contact the debtor directly for payment. That includes attempting to garnish the debtors bank account or wages.

Process

Federal laws force creditors to immediately end all debt collection efforts once a debtor files for bankruptcy. That means creditors must end all garnishment already in process against the debtor and may not attempt new garnishment. The specific law offering the protection is the automatic stay, one of the most important components of bankruptcy law. Every type of bankruptcy offers the automatic stay, including Chapter 7 bankruptcy and Chapter 13 bankruptcy. Chapter 7 bankruptcy is the fastest form of bankruptcy. It ends unsecured debts such as credit cards in three or four months. Chapter 13 requires a payment plan lasting three to five years.

Effects

Most creditors with garnishment orders immediately attempt withdrawing money from the debtors bank account. Their goal is to withdraw the full amount due for the unpaid debt before the debtor chooses to file for bankruptcy. Creditors with garnishment orders can keep any money they garnish before the debtor enters bankruptcy. Once a debtor files for bankruptcy, a creditor can petition the court for payment. However, success with that depends on the type of debt and the bankruptcy chapter. Garnishment usually affects unsecured debts, such as credit cards or loan balances after foreclosure or auto repossession.

Help

Debtors wondering if bankruptcy is the right option should seek advice from a reputable credit expert. Bankruptcy attorneys offer free initial consultations. However, their goal is usually to convince the debtor to file for bankruptcy so the attorney can earn legal fees. Nonprofit credit counselors recommended by the U.S. Department of Housing and Urban Development can discuss other options, including payment plans. Charitable organizations such as local chapters of the National Urban League and the Salvation Army can offer referrals for local nonprofit credit counselors.