Generally, debt collectors use bank garnishments --- or bank levies --- after exhausting other collection options. Potential garnishment depends on the type of debt, state laws and the source of funds. Your state may not allow wage or bank garnishment for some consumer debt or it might limit the amount a creditor can collect. However, federal laws supersede state laws when it comes to federal debt. If faced with garnishment, consult a legal professional concerning your state laws and rights.
Garnishment Process
Most creditors must obtain a court order to garnish your bank account. The IRS may levy your bank account for delinquent taxes without a court order. Once creditors win a judgment against you in court, your bank receives a copy of the order and your account is "frozen" until the debt is paid. You should receive a copy of the judgment stating a time frame to appeal the order. Creditors may levy your bank account balance to zero, depending on state laws.
Exclusions
Social Security income, Veteran's Administration benefits, disability payments, certain retirement accounts, some military pay and many other state and federal benefits are exempt from garnishment. However, government benefits can be garnished for certain government debts and for delinquent child or spousal support payments. Do not assume that the court knows the source of the funds; you must provide proof of exemption.
Recourse
Attend your court date. Ignoring a court summons may result in a default judgment against you. Show proof of any exempt income and financial hardships to the court. If you lose the case or fail to appear, you have a limited amount of time to appeal. Follow the instructions on your garnishment order for the appeal process. If you do not have a copy of the order, call the Office of the Comptroller of Currency, Customer Assistance Group at 800-613-6743 for assistance.
Considerations
Usually, banks, courts and creditors do not verify where account funds are from or whether the money is exempt from garnishment. Let the court, your bank and creditors know if your account contains government benefits. If you use direct deposit and your account is frozen, consider switching to paper checks and paying bills with money orders or cash until the matter is resolved. You may be subject to overdraft fees for other bills if your account is frozen to repay a particular debt.
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