A creditor can obtain a judgment against a debtor and place a freeze on his bank accounts. A judgment may prompt the debtor to negotiate a payment plan with the creditor. Certain types of income, including Social Security Disability, are exempt from collection. A creditor may not freeze these funds or take any of them to repay the debt.
Exempt Income
Certain income is exempt from collection. A creditor may not take any of it even if he has a legal judgment against the debtor. Exempt income includes but is not limited to Social Security, disability payments, retirement accounts, private and public pensions, veteran's benefits, public assistance, unemployment compensation, workers compensation, alimony and child support. If a creditor places a freeze on a debtor's bank account that contains these funds, the debtor has a right to file an exemption claim to regain access to the money.
Negotiating With Creditor
A debtor may negotiate a debt settlement or a repayment plan with the creditor. A creditor may be flexible with payment arrangements if he cannot collect the debt due to exempt funds. While a creditor cannot take the Social Security Disability out of a debtor's bank account, the debtor can make payments to the creditor with the income he receives. Upon reaching a payment agreement, the debtor should request to receive the agreement in writing, as verbal agreements are difficult to prove in court.
Filing Exempt Claim
To pay a creditor, a debtor must gain access to the funds in his account. If he has Social Security Disability or other exempt funds in his bank account, he can file an exemption claim and request a court order to release the funds. By law, the bank must send him an exempt notification and a claim form no later than one business day following the freeze. The account holder has 10 days to file the claim with the court. Failing to file by the deadline will allow the creditor to hold the funds up to 90 days. Once the court issues an order, the bank will release the funds immediately upon receiving the papers.
Vacating a Judgment
If a debtor misses a deadline for exemption filing, he may file a request to vacate a judgment. He may need the help of a qualified attorney to prepare the papers. The court will vacate a default judgment if a debtor has a good reason for not responding to the judgment papers or if he believes he does not owe the money to the creditor. An attorney will prepare the documents according to the individual situation. At the hearing, the court will vacate a default judgment and release the funds to the account holder.
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