When you fail to pay a secured debt, such as a mortgage loan, your lender has the option to lay claim to the collateral you used to qualify for the loan or line of credit. Unsecured debts, however, do not require collateral. To recover the debt a creditor will sometimes seek a bank account garnishment, often referred to as a "bank levy."
The Facts
Private creditors must secure a legal judgment against you in court before a levy can be placed on any of your bank accounts. If you owe a government debt, such as back taxes, no lawsuit is necessary for your bank accounts to be garnished.
Time Frame
You have 21 days to contest an impending bank account garnishment. During this time period, your accounts will be frozen.
Considerations
If your bank account is frozen in lieu of a garnishment, you will have no access to the funds. Any checks you have written will not clear and any automatic payments you have set up will be denied by the bank due to non-sufficient funds. This can result in high bank fees after the garnishment takes place.
Misconceptions
If you receive a bank account garnishment notice, this does not necessarily mean that the creditor you owe will be able to confiscate all of the money in your account--even if you owe more than your account contains. Certain income you receive, such as Social Security and some types of retirement pensions, cannot be levied by private creditors.
Warning
Holding a joint account with someone else does not exempt that account from garnishment. If one joint account holder has a court-ordered bank levy against him, all of his bank accounts are fair game--including those that may contain someone else's money.
Options
Contacting the creditor and opting to enter into a repayment plan can prevent your bank account from being garnished as long as you fulfill your agreement to pay the debt. Filing for bankruptcy will also stop a garnishment from occurring.
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