Paying your credit obligations on time is important for maintaining a good credit rating. If you stop paying your bills, a creditor can refer you to collections or may file a lawsuit against you to pursue other collection attempts, such as wage or bank account garnishment. He must follow certain steps before he can take money from a debtor's account.
Obtaining a Judgment
Before a creditor can freeze a debtor's bank account and take his money, he must first file a lawsuit and receive a judgment against you. The judgment confirms that a debtor owes the debt to the judgment creditor and allows him to proceed with debt collection. A creditor can file for a writ of garnishment to garnish a debtor's wages or to place a levy (freeze) on his bank account. When the court approves the writ of garnishment, the order is forwarded to a sheriff for execution.
Placing an Account Freeze
The sheriff serves the papers to the bank, which holds the judgment debtor's bank account. When a bank receives a garnishment order, its compliance department places a freeze on the debtor's account balance pending account ownership verification. Since certain types of income are exempt form debt collection, the bank can review the deposits made within the past weeks to verify that account holder hasn't made any exempt deposits. Any checks, electronic transactions -- except deposits -- are rejected during the freeze. An account holder may have to pay returned-check fees for these transactions.
Notifying the Debtor
A debtor may not know about the freeze until he tries to access the money in his account, and the transaction is declined. The bank does not notify him ahead of time. However, a creditor may send him a notice of intent to levy (garnish) his bank account. The bank must send the account holder a levy notice within one business day of placing a freeze. A levy notice must include an explanation of a levy and an exemption form for a debtor to complete if he has exempt income in his account.
Removing Bank Account Freeze
If a debtor has exempt income in his account, he should file an exemption form with the court and attend a hearing to present the supporting documents. The court will issue an order to release the funds once it verifies the exempt status of the deposits. If a debtor does not have any exempt income and wants to regain access to his money, the first step a debtor should take is to contact a creditor or his attorney and try to negotiate a repayment plan. If a creditor declines, a debtor may consult an attorney and file with the court to vacate the judgment.
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