When debt collection takes money right out of your pocket.
Garnishment is a debt collection process where a debtor or debt collector can take money out of your bank accounts or paychecks in order to settle a balanced owed. And it’s a process allowed by state and federal laws in the U.S.
Still, that doesn’t mean that any debt collector can just take money out of your accounts whenever they want. There are rules for account garnishment and there are even certain types of income that can be exempted from garnishment. Read the information below to understand the impact of garnishment. If you have questions or have a debt in collections, call us or complete the form to the right to connect with the solutions you need.
Most garnishment requires a court order
First and foremost if a collector calls you an threatens to take money directly out of your bank account, it’s probably a lie unless they’ve already obtained a court order – in which case they wouldn’t be calling you to threaten, they’d just take their money.
Only debts like federal student loan and unpaid income taxes can be garnished out of your accounts or wages without a court order. Other debts – like those incurred on credit cards or through personal loans – can’t be settled with garnishment unless the collector sues you and the court rules in their favor.
With a court order, a collector can take the money the court has ruled they’re entitled to receive through garnishment. They can take it out of existing money your bank accounts and/or out of your paychecks (i.e. wage garnishment).
And keep in mind that you don’t authorize the withdrawal – the collector takes the court order to your bank or credit union and they’re required by law to turn over the funds out of your accounts.
Be careful of frozen account funds
Even before the court has made a final decision about what you owe, once the collector obtains an initial judgement from the court, they can ask your bank to hold the money in your account until the court’s final ruling. Essentially, the funds in your account can be frozen so they’re not accessible or usable.
Of course if you have automatic bill payments or recurring withdrawals set up, a frozen account can lead to overdraft penalties and NSF fees. This can drive you even further into the hole when you’re already struggling.
Fact: The average amount paid for NSF (non-sufficient funds) fees in 2014 was 32.74.
In some states, the law requires that you receive a notification of garnishment before funds can be removed. You may even have an opportunity to prove garnishment exemptions to protect at least part what’s in your account. However, in some states, no notice at all is required – the money can just be taken.
Understanding garnishment exemptions
There are a few types of income that are exempted from garnishment – whether it’s garnishment of money already in your pocket or money out of deposits to your accounts. For the most part, the exemptions have to do with federal benefit income.
The FTC provides the following list of federal benefit exemptions:
- Social Security / SSI Benefits
- Veterans’ Benefits
- Civil Service and Federal Retirement and Disability Benefits
- Military Annuities and Survivors’ Benefits
- Student Assistance
- Railroad Retirement Benefits
- Merchant Seamen Wages
- Longshoremen’s and Harbor Workers’ Death and Disability Benefits
- Foreign Service Retirement and Disability Benefits
- Compensation for Injury, Death, or Detention of Employees of U.S. Contractors Outside the U.S.
- Federal Emergency Management Agency (FEMA) Federal Disaster Assistance
Basically, as long as you can show that the money in your account came from one of the following sources, then it can be exempted from garnishment. On the other hand, the FTC points out that there some exemptions to these exemptions. For example, Social Security benefits can be used child support or alimony settlement.
Confused yet? This is why it can be helpful to have an attorney on your side to explain the ins and outs of garnishment and collection in your state. Call us or complete the form online to tell us about your debts and situation so we can connect you with the professional assistance you need.