Can Debt Collectors Garnish Your Bank Account?

Can Creditors Garnish Your Bank Account?

Yes. If you have outstanding unpaid debt, creditors may be able to garnish your bank account. This is either called a bank levy or account garnishment. It’s similar to a wage garnishment, except it affects your bank account instead of your paycheck, and some of the rules are different. 

How Does a Creditor Get the Right to Garnish Your Bank Account?

Before most creditors and debt collectors can garnish your bank account, they must sue you and win a court judgment. This means they have to:

• File a lawsuit: The creditor must file a complaint in court, claiming you owe them money.

• Serve you with legal papers: You’ll receive a summons and complaint, notifying you of the lawsuit and giving you a deadline to respond.

• Win the case or get a default judgment: If you don’t respond, the court will likely issue a default judgment against you. If you do respond, the creditor must prove you owe the debt.

Once the creditor has a court judgment, they can request a garnishment order, also called a bank levy, which allows them to take money directly from your bank account.

If you’re being sued for a debt, responding to the lawsuit is crucial. Ignoring it can lead to a judgment against you, making it much easier for the creditor to freeze and take money from your bank account. If you're worried about responding on your own, but you can't afford a lawyer, you can draft an answer letter using our partner SoloSuit. They've helped 234,000 people respond to debt lawsuits, and they have a 100% money-back guarantee.

Can Your Bank Account Be Garnished Without Notice?

In most cases, you’ll have some notice that a creditor is trying to garnish your bank account. That’s because most creditors must get a court order before the garnishment process can begin. This means they have to sue you, win a judgment, and then request a garnishment order or a writ of garnishment from the court. Once that’s granted, the bank must freeze your account and turn over funds to the creditor.

However, some government agencies don’t need a court order to garnish your bank account. This includes:

• The IRS for unpaid taxes

• State agencies for past-due child support

• The Department of Education for defaulted federal student loans (though wage garnishment is more common)

If a creditor sues you and wins a judgment, they won’t necessarily tell you before requesting a levy. The first sign could be getting declined when you try to use your debit card. If your account is frozen, you may have a short window to challenge the garnishment or claim exemptions that protect certain types of income.

Is There a Limit To How Much Creditors Can Take From Your Bank Account?

No, there’s no set limit — creditors can take up to the full amount of money the court has approved in the garnishment order. Unlike wage garnishment, which is usually capped at 25% of your disposable income, bank account levies don’t have automatic limits. If your account is garnished, the bank may freeze and turn over all available non-exempt funds to the creditor.

However, certain types of income are protected from garnishment under federal law, including:

• Social Security benefits

• Supplemental Security Income (SSI)

• Veterans' benefits

• Certain federal student aid

• Child support and spousal support (in some states)

• Workers' compensation benefits

Banks are required to review accounts and automatically protect federal benefits direct-deposited within the last two months, but if you deposited exempt funds by check or transfer, you may need to take extra steps to claim an exemption.

If your account is garnished and you believe some or all of the money is protected, you may be able to challenge the levy in court. Since frozen funds can be taken quickly, acting fast is important.

Can Creditors Take Any Money in Your Bank Account?

No, creditors can’t take all the money in your bank account — certain types of income are protected by law. Federal law exempts some benefits from garnishment, including:

• Social Security and Supplemental Security Income (SSI)

• Veterans' benefits

• Federal student aid

• Certain retirement benefits

• Workers' compensation (in most states)

• Child support and alimony payments (in some states)

If your bank account contains both exempt and non-exempt funds, proving which money is protected can be tricky. 

To avoid any issues, it’s a good idea to keep exempt funds in a separate account from other income. Many online banks offer free accounts that can be used for direct deposit.

Even if your money isn’t automatically protected, some state laws  offer additional protections that may prevent creditors from taking certain funds from your bank account. Depending on where you live, state exemption laws may protect a portion of your wages, personal property, or money in your account from garnishment. You can check your state’s specific rules and learn how to claim exemptions at LawHelp.org

If you believe your funds are exempt, you should file a claim of exemption with the court as soon as you receive notice of a bank levy. To find the right form, do an internet search for your local court and “claim of exemption form.”

Bankruptcy Can Stop Garnishment Fast

If a creditor is draining your bank account, filing for bankruptcy can stop them almost instantly. The moment you file, the automatic stay goes into effect, forcing creditors to halt most collection efforts, including bank levies and garnishments. They can’t take any more money from your account unless they get special permission from the bankruptcy court to lift the stay.

Some debts aren’t affected by the automatic stay. For example, you must continue paying child support and certain other obligations even after filing bankruptcy.

If you file for Chapter 7 bankruptcy, most general unsecured debts — like credit cards, medical bills, and personal loans — are discharged at the end of the process. This means creditors can never try to collect those debts again, through garnishment or any other means. However, some debts, such as child support, most taxes, and many student loans, typically can’t be discharged.

If you're considering bankruptcy, Upsolve provides a free web tool to help eligible individuals file for Chapter 7 on their own. If your case is more complex and you want legal help, we can also help connect you with an experienced bankruptcy attorney in your area for a free consultation.

Other Ways To Stop Bank Account Garnishment 

Bankruptcy isn’t the only way to remove a bank levy. Depending on your situation, you may be able to stop the garnishment or limit its impact.

Here are some options to consider:

• Pay off the debt: If you have the funds, the quickest way to remove the levy is to pay the debt in full. This immediately stops further withdrawals from your account.

• Negotiate with the creditor: Many creditors are willing to settle for less than the full amount, especially if they want to avoid the cost of enforcing a judgment. You can try to negotiate a lump-sum payment or a payment plan, even after the creditor has won a judgment against you.

• Challenge the garnishment: If you believe the garnishment is incorrect or unfair, you may be able to challenge it in court. Some possible defenses include:

  • The debt has already been paid.

  • The statute of limitations has expired.

  • The creditor violated debt collection laws.

  • You were a victim of identity theft.

• Claim exemptions: If the funds in your account come from exempt sources, such as Social Security or veterans' benefits, you can file a claim of exemption with the court. If approved, the bank may be required to release the funds back to you.

If your case is in small claims court, you may be able to represent yourself, but getting legal advice can help you understand your rights and prepare your defense. If you choose to fight the garnishment in court, bring any relevant documents, such as payment receipts, to support your case.

Let’s Summarize...

Bank account levies are one of the most frustrating collection techniques. Your account is immediately frozen, and if you try to use your debit card, it will be declined even though you know you have money in the account. 

If you get a notice of a bank account levy, you have options. You could use your exemptions or try to negotiate with the creditor to find a suitable alternative. If these options don’t work, it’s a good idea to consult with a bankruptcy attorney. Bankruptcy is the strongest tool in your arsenal because it can stop most levies and garnishments instantly upon filing.