Can Credit Card Companies Take Unemployment?

While credit card companies can attempt to garnish your income, state laws may protect your unemployment benefits. Protection from garnishment may not stop a creditor from using other means --- such as bank levies or lawsuits --- to collect the debt. If you are sued for outstanding debt, seek legal advice regarding state laws and garnishment exemptions in your state.

Facts

Most states do not allow garnishment of unemployment benefits for consumer debt such as delinquent credit card payments. However, the state may withhold a portion of your benefits for outstanding child or spousal support or debts owed to the state. Under the Fair Debt Collections Practices Act, a credit card company or debt collector cannot threaten you with illegal action or make false statements in an attempt to collect. False statements include telling you the collector will garnish state or federally protected funds. Report debt collection violations or file a complaint with the Federal Trade Commission or your sate attorney general.

Community Property

While your unemployment benefits may not be subject to garnishment, if you live in a community property state, your spouse may be liable for the debt. Barring marriage contracts excluding some property or debts, assets and liabilities earned by either spouse in a community property state are jointly owned or owed. Depending on state laws, a credit card company may sue your spouse for all or a portion of the debt and request a wage garnishment order.

Bank Levies

If creditors cannot legally garnish your benefits, they may attempt to place a levy on your bank account. Bank levies must be court ordered and the judgment results in "freezing" of your account until the debt is paid or you appeal the order. While the court and your bank will not freeze or disperse exempt funds, a levy may allow partial garnishment of your bank account if unemployment funds are mixed with other income. Additionally, if the court does not know the account holds exempt benefits, the entire amount may be levied for the debt.

Protecting Your Unemployment Benefits

Do not assume your unemployment benefits are protected if you receive notice of an impending lawsuit. Contact the court, attend your court date and provide proof that your funds --- including funds in your bank account --- are exempt from garnishment. If your bank account is frozen, tell the bank and creditors that the funds are exempt and contact the issuing court to have the levy lifted . Additionally, consider having directly deposited unemployment benefits placed in a different account or request checks until the matter is resolved.