What Does it Mean to Confiscate a Debt?

To "confiscate" a debt refers to forcibly seize an unpaid debt from a debtor. A creditor will generally attempt to confiscate this payment if other methods of collection have failed. Confiscation is generally limited to debts that are long overdue and for which the creditor has received a judgment in court. However, certain categories of individuals and kinds of income enjoy immunity from debt confiscation.

Garnishment

The most common type of forcible confiscation of debt is the garnishment of a person's income stream, usually wages from a job. When a debt is garnished, the creditor, with the permission of a judge, will approach the debtor's employee or other income provider and serve him with an order that mandates he set aside a portion of the debtor's wages for the creditor. This continues until the debt is fully paid off.

Account Seizure

In lieu of garnishment, a creditor can also seize funds from a person's bank account. This is done by approaching the debtor's bank or other financial institution -- again, with the permission of a judge -- and ordering the account frozen. Once an account is frozen, a creditor may be able to seize funds from the account and use them to pay off the outstanding debt. Banks are legally obligated to comply with freeze orders.

Liens

In some cases, a creditor may also be able to place a lien on a person's property. Generally, such liens are unavailable to creditors who have won judgments for unsecured loans. However, if a loan is secured by a piece of property, such as real estate, a creditor may be allowed to place a lien on it if the debt is late. Before the property can be sold, the creditor receives payment first.

Exemptions

Confiscation is outlawed in a number of instances. While some federal laws apply to these practices, most laws are formed at the state level, meaning that the rules that apply will vary by region. However, federal law protects the seizure of federal benefits, as well as certain other income streams. In addition, many debtors are protected from the confiscation of their debt if they are receiving little income.