Can Collections Take Your Bank Account?

If you have an account in collections, it typically means you are seriously delinquent in terms of making payments. By the time you are in collections, you may be getting threatening phone calls and letters constantly, imploring you to pay and threatening drastic financial actions against you. While the good news is that most creditors cannot physically take your money without winning a lawsuit first, the bad news is that some of them can.

Court Action

For most creditors, the path to your bank account begins with a lawsuit. If you legitimately owe the debt, the court will most likely rule against you and award a judgment to your creditor. With a judgment in hand, your creditor is empowered to send the sheriff after your money. Typically, a creditor with a judgment will have your employer garnish your wages.

Wage Garnishment and Bank Levies

Wage garnishment forces you to pay your creditor, even if you think payment is beyond your means. In most states, a judgment creditor can garnish up to 25 percent of your wages. Additionally, your creditor may be able to levy your bank account. A bank levy is a severe action that allows a creditor to take enough money out of a debtor's bank account to satisfy a debt, with certain exceptions.

Exempt Assets

Even a creditor with a judgment cannot take everything you have. Federal law prohibits wage garnishment of the first $217.50 of your weekly pay, which represents 30 times the federal minimum wage as of 2009. Additionally, a creditor with a levy cannot seize any bank funds that reflect Social Security payments. However, upon receipt of a bank levy your bank may freeze the assets in your account until you can demonstrate that your funds should be exempt under federal law.

Bank Setoff

In some scenarios, even a creditor without a judgment may seize your bank account. If you have a checking or savings account at a bank to which you also owe money, the bank may seize some or all of your funds to pay off your debt. This process is known as a bank setoff. The bank has the right to do this because you effectively become the bank's creditor when you make a checking or savings deposit. If you refuse to pay back the money you owe the bank, it can refuse to pay you back the money it owes that you deposited.