Can Your Savings Accounts Be Garnished?

A savings account garnishment is a legal process that allows a creditor to seize funds directly from a debtor’s bank account to satisfy an unpaid debt. It involves a formal legal procedure that compels a financial institution to release a portion of or all funds held in the debtor’s account. This process is distinct from wage garnishment, which targets income, though both aim to recover outstanding balances.

How Savings Accounts Can Be Garnished

Garnishment of a savings account generally begins after a creditor has secured a court judgment against an individual. Following this, the creditor can request a “writ of garnishment” or “bank levy” from the court.

A writ of garnishment is a formal legal document that is then served to the debtor’s bank. Upon receiving this writ, the bank is legally obligated to freeze the funds in the specified account up to the amount of the judgment. This freeze prevents the account holder from withdrawing or transferring the funds. After a mandatory holding period, typically around 10 to 21 days, the bank will release the frozen funds to the creditor to satisfy the debt.

Common Reasons for Account Garnishment

For many consumer debts, such as unpaid credit card balances, personal loans, or medical bills, a creditor must first file a lawsuit and obtain a court judgment. Without this judgment, a private creditor generally cannot initiate a garnishment against a bank account.

Government debts, however, often operate under different rules. Federal and state tax debts, for instance, can lead to an IRS bank levy without a prior court judgment, though the IRS typically sends multiple notices before a levy occurs. Similarly, defaulted federal student loans can result in administrative garnishment without a court order, allowing the government to seize funds directly. Child support and alimony arrears are another common reason for garnishment, and these orders may also allow for direct withholding from bank accounts or income.

Funds Protected from Garnishment

Federal law provides protections for certain types of income. These federally protected benefits include Social Security benefits (both Social Security Disability Income and Supplemental Security Income), Veterans’ benefits, federal student loan disbursements, and Railroad Retirement benefits.

Additionally, retirement benefits from plans qualified under the Employee Retirement Income Security Act (ERISA), such as 401(k)s and pension plans, are generally protected from garnishment by most creditors. This protection, however, may not extend to individual retirement accounts (IRAs) unless specifically protected by state law. Many states offer additional exemptions for certain types of income or a minimum amount of funds, such as unemployment benefits, public assistance, or a “wild card” exemption that protects a certain dollar amount across any property.

For federal benefits directly deposited into an account, federal regulations require banks to automatically protect a certain amount, typically equal to two months of the benefits, from garnishment. This automatic protection helps ensure that individuals reliant on these funds retain access to money for essential needs. While these funds are generally exempt, the process of proving their protected status and preventing their seizure remains important.

Steps to Take If Your Account is Garnished

If you receive notice that your savings account has been garnished or frozen, immediate action is important. Begin by carefully reviewing the garnishment order or notice from your bank or the court to understand the creditor, the amount claimed, and the court involved. This document provides essential details about the legal action taken against your account.

Next, identify if any of the funds in your account are protected by federal or state exemptions. This involves checking if the funds originate from sources like Social Security, Veterans’ benefits, or other exempt categories. If you believe protected funds have been garnished, you must file a “claim of exemption” with the court that issued the garnishment order.

This claim typically requires submitting a form and providing documentation, such as bank statements or benefit award letters, to prove the exempt nature of the funds. Deadlines for filing a claim of exemption are strict, often ranging from 10 to 30 days from the date of the notice, so prompt action is necessary. You should also contact your bank to understand their specific procedures regarding the freeze and the release of funds. Finally, consider seeking legal advice from an attorney specializing in debt collection or consumer law, especially if the situation is complex or a significant amount is at stake. An attorney can help navigate the legal process and ensure your rights are protected.