A borrower is subject to a garnishment action when she is delinquent on a loan, is taken to court by the creditor or debt collector and has assets or wages confiscated by the court. Usually, back taxes and child support make a consumer liable for garnishment, but credit card companies may attempt to collect this way, too. Borrowers who attempt to circumvent a garnishment by purchasing a prepaid debit card may be unpleasantly surprised.
Knowledge of the Prepaid Account
Prepaid debit card garnishment is predicated upon the creditor knowing that the borrower has such an account. If you used your Social Security number when establishing a prepaid account, creditors and debt collectors will be alerted to its presence, and the possibility of garnishment exists. When an account is garnished, the assets are frozen and aren't available to the consumer. This becomes particularly problematic when the assets on the prepaid card are protected government payments, such as Social Security income.
Nonwage Garnishment and Protected Funds
Federal law prohibits the garnishment of Social Security, disability or veteran's payments, according to Fox Business, unless the creditor attempting to collect is the government (for state or federal back taxes). Prior to May 1, 2011, it was the consumer's responsibility to prove that funds were payments protected from garnishment. As of May 2011, however, electronically deposited funds are "tagged" as such and protected against garnishment. However, consumers must be sure to save proof that protected funds deposited into a prepaid debit account are, in fact, protected.
Reviewing Your Card Agreement
When you purchased your prepaid debit card, you received along with it a consumer rights and policy statement that includes language about what can and cannot be garnished. If you're unsure whether your prepaid debit card fund can be garnished, read your card agreement carefully. Rules about garnishment are likely to be included in the "privacy" or "legal" section. For example, Chase prepaid debit cardholders are informed quite clearly that the possibility of garnishment exists: "yes . . . funds [are] treated the same as any other funds."
Protecting Yourself Against Garnishment
Many borrowers ignore collection notices and phone calls. However, you are better served contacting your creditor or collector directly immediately. Explain your situation -- be prepared to provide documentation -- and try to work out a payment arrangement. You also can consider filing for bankruptcy if you face extreme financial problems. Alternatively, a credit counseling agency such as the National Foundation for Credit Counseling may be able to negotiate on your behalf. Do not ignore the issue. Getting your debts resolved will help you move on and rebuild your finances.
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