Can Collections Take Money From Your Bank Account?

A bank account levy, also known as a bank garnishment, is a legal procedure where a creditor or debt collector can seize funds directly from a debtor’s bank account. This action aims to satisfy an outstanding debt. It is a serious financial event, always involving specific legal prerequisites before funds can be accessed.

The Requirement for a Court Order

Typically, a debt collector or creditor cannot remove money from a bank account without first obtaining a court judgment. A judgment is a formal court order declaring that one party owes money to another. This document establishes the creditor’s right to pursue collection actions, including a bank levy.

The typical path to obtaining a judgment begins with the creditor filing a lawsuit against the debtor. The debtor must be formally served with legal papers, providing notice of the court action. If the debtor fails to respond within the specified timeframe, the court may issue a default judgment. Alternatively, if the case proceeds to trial and the creditor prevails, a judgment will be issued.

For general consumer debts, such as credit card balances, medical bills, or personal loans, a court judgment is almost always a prerequisite for a bank account levy. However, certain debts allow for administrative processes that can lead to seizure without a traditional court judgment. Federal debts, including overdue federal student loans or delinquent taxes, can result in administrative garnishments. Child support arrears may also be collected through administrative wage or bank garnishments. Even in these cases, stringent legal processes and notification requirements ensure due process.

How a Bank Account Levy Happens

Once a creditor has secured a court judgment, or an equivalent administrative order for government debts, they can proceed with the levy process. The next step involves the creditor obtaining a writ of garnishment or a writ of execution from the court that issued the judgment. This writ is a legal document authorizing the seizure of funds.

The writ of garnishment is then formally served on the debtor’s bank, not directly on the debtor at this stage. Upon receiving the writ, the bank is legally obligated to place an immediate hold on any funds in the debtor’s account, up to the amount specified. This action effectively freezes the funds, making them inaccessible to the account holder.

The bank’s role is to comply with the legal order. After freezing the funds, the bank typically notifies the account holder of the levy. The bank then holds the frozen funds for a specific period, ranging from 10 to 21 days depending on jurisdiction, to allow the debtor an opportunity to respond or claim exemptions. Following this holding period, if no successful claim of exemption is made, the bank remits the funds directly to the creditor to satisfy the judgment. Debtors often receive formal notice of the levy from the creditor, court, or bank after funds have been frozen.

Funds That Cannot Be Taken

Even with a valid judgment, certain funds are legally protected from bank account levies under federal and state laws. These protections, known as exemptions, ensure individuals retain access to funds necessary for basic living expenses.

Federal law protects several categories of income from seizure by creditors. These include Social Security benefits, Supplemental Security Income (SSI) payments, and Veterans’ benefits. Federal student aid, certain retirement benefits qualified under ERISA, and various public assistance benefits are also generally exempt from garnishment. These funds typically retain their protected status even after being deposited into a bank account; however, commingling exempt funds with non-exempt funds can complicate efforts to claim the exemption.

Beyond federal protections, states maintain their own exemption laws, offering additional safeguards. State laws might protect a certain amount of money in a bank account through a “wildcard” exemption, or exempt specific income types not covered by federal statutes, such as a portion of earned wages or disability payments. When a bank account levy occurs, the debtor must typically file a claim of exemption with the court within a specific timeframe, usually 10 to 20 days, after receiving notice of the levy. The burden of proof usually rests with the debtor to demonstrate the funds are exempt.

Actions Following a Bank Levy

Upon discovering a bank account levy, take immediate and informed steps. First, carefully review any levy notices received from the bank, court, or creditor. These notices typically contain information such as the amount of funds levied, details of the underlying judgment, the issuing court, and instructions for claiming exemptions.

Also, check recent bank statements to confirm the exact amount of funds frozen or taken from the account. This provides a clear picture of the financial impact. After reviewing notices and account activity, determine if any levied funds are protected by federal or state exemption laws, referencing the types of funds that cannot be taken.

If exempt funds have been levied, file a claim of exemption with the court. Forms are typically available from the court clerk’s office or a local self-help legal center. Adhere strictly to filing deadlines, which are often short, and provide comprehensive documentation supporting the claim. If the situation is complex, especially regarding exemption laws or court procedures, consult a qualified attorney or seek assistance from legal aid services.