If you default on a credit card, loan or other debt, the creditor could freeze your bank account and then seize any funds in the account. However, the creditor must follow strict requirements before seizing assets, starting with taking you to court. Until the creditor has a judgment against you, your assets, including your bank account, are off limits.
Creditor Must Have a Judgment Against You
Before creditors can attempt to seize any property or assets, they must file a lawsuit against you. You'll receive a summons requesting that you file a written response with the court. If you don't respond to the summons or appear in court, the creditor will receive a default judgment against you. Once the creditor has this judgment, it can start proceedings to seize property and assets. Creditors can attempt to seize your assets in several ways, including filing a lien against any property you own, garnishing your paycheck or placing a levy on your bank account.
Creditor Must Obtain Bank Levy
Even after a creditor obtains a judgment, it still has to go through separate proceedings to seize your bank account. This is called a bank levy. Once the creditor receives permission to seize your bank account, the account is first frozen, usually for 21 days. You can deposit money into the account, but not take money out. While creditors are only allowed to garnish 25 percent of your paycheck, there is no limit to how much money they can take from your bank account. They also can levy your account repeatedly to satisfy the balance owed on the debt.
Exceptions
Some income is exempt from being seized by creditors. This includes federally funded sources of income such as disability or Social Security. While creditors can't garnish your check, if the money is in your account when they seize it, the bank will turn it over along with any other money in the account. Banks don't distinguish between federally funded income and other sources. If the money in your account comes from a federal source such as Social Security, you can file paperwork with the court proving the source of the money. You'll also receive a letter notifying you that your bank account has been frozen, and it should contain instructions on what to do if some of the money in your account is exempt from garnishment.
Protecting Your Money
Once a creditor has a judgment against you, your bank account is always at risk of being levied. If you want to protect your income, you can either negotiate directly with the creditor and work out a payment arrangement or keep no money in your bank account. Even if you don't provide the creditor with your banking information, he could still locate it. Creditors often contact banks in the area where you live, and then serve a writ of execution on the bank they think you use. If some of the money in your account is exempt, you'll need to submit documentation to the court and may have to go before a judge. If the judge decides the money is exempt, the creditor cannot seize it, and the bank must lift the freeze on your account.
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