Can Bill Collectors Go Into a Bank Account?

Bill collectors can draw from a bank account if granted permission by a judge. The process is called bank garnishment, and it can occur after the debt collector wins a debt lawsuit. Credit card companies file lawsuits in small claims court to collect unpaid debts, and other types of creditors may file lawsuits as well.

Judgments

Debt collectors that win debt lawsuits receive monetary judgments signed by a judge. The legal order requires the person sued to pay a specific amount for the account balance, court fees and legal fees. Judgments are very bad for an individual's credit and can lead to bankruptcy. Additionally, judgments are included in public records and also are placed on credit reports for seven years. No provisions are available for removing them earlier, although paying a judgment results in credit reports updated to show the account as a "paid judgment."

Garnishment

Garnishment is possible if the debtor fails to pay the judgment or make payment arrangements. In the case of a garnishment the bill collector makes the request to a judge, and judges usually agree. The debt collector then sends a copy of the garnishment order to the debtor's bank, requesting access to the account. By law the bank must comply with the garnishment order, and banks are not required to notify the customer that garnishment is starting.

Frozen Account

The debtor usually finds out about bank garnishment after checks bounce, debit card transactions fail or an online review of the account shows a huge negative balance. That is an indication that the account is garnished or frozen. Frozen accounts allow free access to the account for the bill collector, during which it can make lump sum or multiple withdrawals to satisfy the unpaid judgment. Meanwhile, the owner of the account is allowed only to deposit money into the account and cannot use it in any other way.

Bankruptcy

Some people end garnishment by filing for bankruptcy, although that is an extreme option. Bankruptcy features a legal order called "the automatic stay." It immediately halts garnishment and all other debt collection efforts. However, bankruptcy ruins credit for years and the Federal Trade Commission recommends avoiding it. People whose accounts are frozen should negotiate with the bill collector to set up a payment plan in exchange for an end to the garnishment.

Default Judgments

Avoiding lawsuits altogether is the best option. Some people ignore debt collection notices, including legal notices about court hearings. Failing to appear in court results in the bill collector easily winning a default judgment and proceeding to garnishment. A default judgment means the person sued did not appear in court to defend against the lawsuit. That forces the judge to award a judgment to the bill collector. In all cases settling out of court is better than a default judgment.