Bank Account Garnishment

In most cases, garnishment follows this general sequence:

• A creditor files a lawsuit and serves the debtor with notice.
• The court enters a judgment establishing legal liability.
• The creditor obtains a writ of execution or garnishment order.
• The order is served on the financial institution holding the account.
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Upon receipt of the order, the bank restricts access to the specified funds. Outcomes depend on the specific facts of each case, including whether the judgment was properly obtained and whether procedural requirements were satisfied at each stage.

The terms “garnishment” and “bank levy” are sometimes used interchangeably, but they may have different technical meanings depending on state law. Generally, garnishment refers to the legal process of attaching funds through a third party, while a levy refers to the actual transfer or seizure of those funds. Some jurisdictions use the term “non-wage garnishment” to distinguish bank account enforcement from wage withholding. Regardless of terminology, both processes are subject to strict procedural rules.

Once a bank receives a valid garnishment order, internal compliance procedures typically require prompt action. As a result, access to funds may be restricted before the account holder receives formal notice. This timing is intended to preserve the status of the funds while the court process continues. However, the scope and duration of the freeze must remain within the limits authorized by law.

A judgment establishes the legal basis for enforcement. Without a judgment entered by a court with proper jurisdiction, a creditor lacks authority to garnish a bank account. After judgment, a writ of execution or similar order directs enforcement through the bank. Reviewing these documents for accuracy and jurisdictional validity is often a critical first step.

Although funds may be frozen before notice is received, creditors are typically required to provide timely notice after the garnishment is initiated. This notice should include information regarding the debtor’s rights, available exemptions, and applicable deadlines. Failure to comply with notice requirements may affect the enforceability of the garnishment. Procedures vary by state.

Banks act as neutral third parties in the garnishment process. Their obligation is to follow the court order as written. A bank that fails to comply may face liability, which is why institutions tend to act cautiously and promptly. Banks do not determine whether a garnishment is valid; that determination is reserved for the court.

Banks may freeze funds up to the amount specified in the garnishment order, sometimes including additional amounts authorized for interest or costs. During this period, withdrawals, transfers, and payments may be blocked. The treatment of new deposits depends on the language of the order and applicable state law.

State law often requires a holding period during which funds remain frozen before being transferred to the creditor. This period is intended to allow the account holder time to assert exemptions or raise procedural objections. If no action is taken within the permitted timeframe, the bank may be required to release the funds to the creditor.

Banks may charge administrative fees for processing garnishment orders, as permitted by the account agreement. Additionally, failed transactions resulting from the freeze may lead to secondary fees or penalties from other service providers. These consequences are often collateral effects of the enforcement process rather than part of the garnishment itself.

Federal law generally protects specific categories of income from garnishment by private creditors, including:

• Social Security and SSI benefits
• Veterans’ benefits
• Certain federal retirement payments
• Railroad retirement benefits

Banks are often required to automatically protect a limited amount of these benefits based on recent deposit history, but the scope of automatic protection is limited.

Not all exemptions apply automatically. When exempt funds are mixed with non-exempt funds in a single account, additional steps may be required to identify and protect the exempt portion. Filing a Claim of Exemption within the required timeframe is often necessary to prevent the transfer of protected funds.

States may provide additional exemptions, including cash exemptions or “wildcard” exemptions that can be applied to various types of property. Because these rules vary significantly, state-specific analysis is essential.

A Claim of Exemption asserts the legal right to retain certain funds. Once filed, the creditor may have an opportunity to object, and the court may schedule a hearing to resolve the issue. Timeliness and documentation are critical.

Potential grounds for challenge may include improper service of the original lawsuit, errors in the judgment, lack of notice, or enforcement actions taken in violation of a bankruptcy stay. Each situation must be evaluated based on the specific record.

In some cases, creditors may agree to release a garnishment in exchange for payment or other resolution. Settlement decisions depend on many factors, including the creditor’s position, the enforceability of the judgment, and the availability of alternative remedies. Outcomes depend on the specific facts of each case.

Funds in joint accounts are often presumed to belong to all account holders, but this presumption can be challenged. Non-debtor account holders may be able to demonstrate that specific funds belong to them and should not be subject to garnishment.

Accounts held by corporations, LLCs, or trusts are generally distinct from personal accounts, provided formalities are maintained. Creditors may attempt to reach these accounts only under specific legal theories, which require careful analysis.

In community property states, the characterization of funds as community or separate property may affect garnishment rights. These determinations are highly fact-specific and governed by state law.

Wage garnishment involves ongoing withholding from income, while bank account garnishment targets existing funds. Both may occur concurrently, and each is governed by separate rules.

Property liens affect long-term equity rather than immediate liquidity. While liens do not result in immediate loss of cash, they can restrict future transactions involving real property.