Can a Bank Take Your Money From Another Bank?

Financial institutions generally operate independently. While a bank cannot directly access funds you hold at a different institution to cover a debt owed to them, legal and governmental mechanisms can compel the transfer of funds across various banking entities under specific circumstances. This means money in your accounts at one bank could be at risk due to debts or judgments tied to another.

Mechanisms for Fund Access

A common legal tool allowing fund access across different banks is a bank levy, also known as a garnishment. This legal order directs a bank to freeze and surrender funds from an account to satisfy an unpaid debt. After a creditor obtains a court judgment, they can initiate this process. The court issues a writ of execution, served on the bank where the debtor holds funds. The bank must freeze the amount owed and, after a waiting period, typically 21 days for federal tax levies, remit the funds to the creditor or the sheriff’s department for distribution.

In contrast, a “right of set-off” is a contractual agreement allowing a bank to take funds from an account held at that specific bank to cover an unpaid debt owed to that same bank. For example, if you have a checking account and an overdue loan with the same bank, the bank might use funds from your checking account to cover the loan balance. This right applies only to accounts and debts within the same financial institution and does not permit a bank to reach into accounts at other banks.

Government agencies, such as the Internal Revenue Service (IRS) for unpaid taxes or state agencies for child support, possess authority to issue levies that compel banks to turn over funds. Unlike private creditors, these agencies often do not require a prior court judgment to initiate a levy, though they must provide advance notice. These levies can apply to accounts across different banking institutions.

Situations Leading to Fund Access

One primary reason funds might be accessed across different banks is an unpaid debt resulting in a legal judgment. When a consumer defaults on obligations like credit card balances, personal loans, or medical bills, the creditor may file a lawsuit. If the court rules in their favor, a judgment is issued, which then forms the basis for initiating a bank levy.

Unpaid taxes represent another trigger for fund access. Federal tax authorities, like the IRS, can issue levies directly against bank accounts for delinquent taxes without needing to obtain a prior court judgment. State tax authorities also have similar powers to levy bank accounts to collect overdue state taxes.

Child support arrears can also lead to bank account seizure. State child support enforcement agencies can issue administrative orders to financial institutions, directing them to seize funds from accounts to cover unpaid child support obligations.

Other government financial obligations, such as unpaid court fines or fees, can also result in bank levies. While less common for private creditors, various government entities have the authority to pursue such actions to collect outstanding debts.

Funds and Accounts at Risk

Checking, savings, and money market accounts are generally subject to bank levies and garnishments. Funds held in these common account types can be frozen and seized to satisfy a legal debt or obligation. The bank typically freezes the amount up to the debt owed upon receiving a valid levy notice.

Joint accounts present complexities, as funds within them can be seized to satisfy a debt owed by any account holder. Even if the debt belongs solely to one individual, the entire balance of a joint account may be at risk. Account holders may need to demonstrate that specific funds belong exclusively to a non-debtor to protect them.

Certain types of funds are exempt from seizure under federal or state law, meaning they cannot be taken through a levy. These protected funds commonly include Social Security benefits, Supplemental Security Income (SSI), veteran’s benefits, and certain disability payments. To maintain protection, these funds should be identifiable, often through direct deposit into an account, and the account holder may need to actively claim the exemption.

Qualified retirement accounts, such as 401(k)s and IRAs, generally receive protection from creditors under federal law, particularly the Employee Retirement Income Security Act (ERISA) for employer-sponsored plans. While these accounts are broadly shielded from most creditors, exceptions exist for specific obligations like federal taxes, child support, or certain court-ordered penalties. Protection for IRAs can also vary by state law, especially outside of bankruptcy.