Tag Archives: garnish

Garnishment of Assets by Debt Collectors

debt collectors garnish your wages? What about bank accounts? Here are some things you need to know about garnishment.

If you have assets, and this includes either a job or money in the bank, you must be concerned about the possibility of the debt collector finding and garnishing your money. The risk exists if a debt collector (or anybody else) has a judgment against you.

Governments can levy even without a judgment. Our discussion here focuses on private debt collectors, however.

Bank Accounts

Debt collectors can seize and garnish bank accounts and, when they do, it is almost always comes as a surprise to the debtor. What typically happens is collectors obtain money judgments (usually by default) and then use the judgment to freeze the funds in your bank account.

No Notice of Bank Garnishment

State law and banking rules govern how the bank must handle the garnishment process. Collectors always notify the bank first and then notify the debtor. This way your funds are frozen before you can take any action such as withdrawing all your funds.

Their notifying the bank first is perfectly legal. You typically receive the notice (including your rights) a few days after your funds have been frozen. In most states, the garnishment can only freeze funds already in your account at the time of service on the financial institution. During the time the garnishment is in effect, the financial institution cannot honor checks or other orders for the payment of money drawn against your account.

This means any outstanding checks will more than likely bounce or be returned for NSF (non-sufficient funds). In other words, your checks will bounce. The exception to this rule is if your account has more on deposit than the amount of the garnishment. In this case, the bank can honor checks up to the amount that will reduce your funds below the amount of the garnishment. When the amount being garnished is paid, the freeze on your account must be terminated.

Wages

Debt collectors can also garnish your wages. Again, your first notice that they are garnishing you is likely to be when you receive a check that is less than you thought it would be. Federal law limits the maximum amount they can take to 25 percent of your disposable earnings for that week, or the amount by which disposable earnings for that week exceed thirty times the Federal minimum hourly wage, whichever is less. In simple terms, “disposable income” is whatever money you have left after paying all required taxes and national insurances!

Disposable income is after-tax income that is  the difference between personal income and personal tax and nontax payments. In general terms, personal tax and nontax payments are about 15% of personal income. That makes disposable personal income about 85% of personal income. IMPORTANT: In order for wages to be garnished, disposable earnings per week must exceed thirty times the federal minimum hourly wage.  (That’s $154.50 at the time of this writing.)

Put another way, if you make $154.50 or less per week your wages are immune from garnishment – for now and as long as you don’t make any more than that. Also – most debt collectors can never garnish Social Security and some other types of disability or retirement income.

But You Should Not Let them Get a Judgment if Possible

Even if you have nothing for the debt collectors to garnish, you will almost always be much better off it you don’t let them get a judgment against you. Things could get better for you in any number of ways. So they might eventually be able to garnish you when that happens if you let them have a judgment. Remember that just because things may seem bleak now doesn’t mean that the sun won’t eventually shine. When it does, you don’t want debt collectors to take your good luck away from you.

And it isn’t all that hard to keep them from getting a judgment if you know what you’re doing.

 

Social Security Recipients in Danger of Garnishment by Collectors

Social Security recipients face a risk not only from their own debt troubles but also those of  the people that take care of them. If you receive Social Security or take care of someone who does, you should know about this.

 

Secret Danger of Garnishment to Social Security Recipients and Others

As I have pointed out in my video about garnishing Social Security, Social Security benefits are exempt from most forms of garnishment. The notable exceptions to that rule is that they may be garnished by certain government entities and for child support.

Although Social Security benefits are exempt from most forms of garnishment, collectors sometimes attach and take them. When a collector garnishes a bank account,  the bank holds the funds for a time to allow you to fight the garnishment. In plain English, they “freeze” the account, and you can’t get your money.

As a practical matter, you may be unable to fight the garnishment. Thus if you have paid for bills with an account that holds Social Security benefits, it makes  sense to switch those benefits to another bank if that creditor later gets a judgment against you. Once they get a judgment, the debt collector will look for your assets. It will try to garnish any assets in a bank they have on file for you.

I realize this can be difficult or disruptive, but if you have paid an original creditor or debt collector out of an account, you must expect that account to be garnished – seized and taken away from you – if the debt collector manages to get a judgment.

If the debt collectors seized an account,  you may or may not be able to get the money back. There will certainly be a delay, and all the money in the account, up to the amount of the judgment, will be held by the bank and unavailable to you.

Debt collectors sometimes garnish the accounts of Social Security recipients because of their caretakers.

Social Security recipients are often elderly or disabled, needless to say. Many of these people need other people to do shopping for them. Or to hold their assets in one way or another to use for their benefit. This money is held in trust and should not be available to debt collectors going for the caretaker’s money.

Here is an example that might make it clearer. Assume that Tom is taking care of Mary, his 70 year old mother. She suffers from Altzheimer’s. Mary and Tom will frequently find it helpful to allow Tom to use Mary’s account to pay her bills. If Mary’s account contains only Social Security benefits, it should be beyond the reach of any creditor. And because the money is not Tom’s at all, it should never be reachable by Tom’s creditors.

However, sometimes debt collectors will discover that Tom is paying bills using Mary’s account.  If his name is on the account, or if he writes checks upon it, the debt collectors may attempt to garnish the account.

This is not as “evil” as it may first appear. From the debt collector’s point of view, how do they know what bills Tom is paying with the account? People often hide assets from debt collectors by using other people’s accounts. The law lets creditors go after the debtor’s money regardless of whose name it is in.

On the other hand, the impact on Mary of seizing her account for Tom’s debt can be devastating. Remember, the banks will freeze the account for a while to determine whether the debt collector can take it. During that time, the elderly person cannot pay her bills. She may be evicted, be unable to pay for medicine, or face other, life-threatening and disrupting events.

Get Legal Advice

If there is a judgment against you, seek the advice of a lawyer specializing in debt collection before linking anyone’s accounts to you in any way. In my opinion, the risk extends beyond just having your name on the account. If you sign checks for someone else and have a judgment against you, you may be putting this person at risk. Get legal advice and protect them and you.