If you don’t pay your debts, the money in your bank account could be seized. To take funds out of your account, most creditors first have to file a lawsuit against you and get a judgment from the court. Once a creditor has a money judgment, it can use a particular collection procedure called “levying” (seizing) your bank account to get paid.
However, certain benefits, like Social Security, are off limits from this process—at least to some extent. Read on to find out how to protect your bank account from seizure.
Can the Funds in My Bank Account Be Seized By Collectors?
Generally, yes. Again, in most cases, a creditor has to go to court and get a judgment against you before it can seize money from your bank account.
How Do Bank Account Seizures Work?
The creditor begins the process of getting a judgment by filing a lawsuit against you in court. If you don’t respond to the suit, the creditor will get a default judgment—an automatic win—that orders you pay money to the creditor. The judgment amount will be what the creditor asked for in the complaint (the document that started the suit).
If you respond to the lawsuit and lose, the creditor will get a judgment that, again, usually reflects the amount specified in the complaint. And if you and the creditor settle, the judgment will reflect the amount of the settlement. In all of these scenarios, the victorious creditor will end up with a judgment that states the total amount of money you owe.
Once the creditor gets a money judgment, it can get a court order to seize the money in your bank account or use other methods to collect from you, like by garnishing your wages.
What Is the Procedure for Seizing Bank Accounts?
Once the bank receives the court order, it freezes (places a hold on) the funds in your bank account up to the amount of the judgment—possibly all the money you have in the account. You won’t be able to withdraw that money or use the funds to cover checks you’ve written.
How Can You Stop the Seizure of a Bank Account?
You’ll get a notice that the creditor has levied your bank account. The notice will describe the property (the bank account) and will also explain how you can claim any exemptions that will allow you to keep some or all of your money.
What Should You Do When Your Account Is Seized?
Once you get a notice saying a creditor is seizing your bank funds, determine which funds, if any, are exempt from seizure (see below).
The bank will eventually send any non-exempt funds to the creditor to pay off your debt.
What Money Is Exempt From a Bank Account Seizure?
“Exemptions” allow you to keep some or all of your money even if a creditor has a judgment against you. Exactly how much you can keep safe from seizure by creditors depends on the amount of money you have in the bank account, the source of the money, and your state’s laws.
Certain Federal Benefits Can't Be Seized
A U.S. Department of Treasury rule requires the bank to protect certain federal benefits, like Social Security, Supplemental Security Income (SSI), or veterans’ benefits, from seizure by creditors. Under this rule, the bank must protect two months’ worth of federal benefits if the funds were directly deposited into the account.
Exception for child support, spousal support, federal student loans, and federal taxes. However, if the garnishment order is to collect child support, spousal support, federal student loans, or federal taxes, the bank can freeze the funds, even if they come from Social Security. Some benefits, though, like SSI, are protected from garnishment even if the debt is a government, child support, or spousal support debt.
How to protect your protected funds in a bank account from seizure. This protection is supposed to be automatic when the government sends you benefits through direct deposit because the bank will have a record of all such deposits—and federal law requires the bank to look for them. So, in theory, it shouldn’t matter whether the funds are in their own, separate account, or co-mingled with other monies.
For example, suppose you received $500 in Social Security over the past two months through direct deposit, which went into an account that holds $7,000. If you owe $10,000, the creditor can seize $6,000 from this account (assuming it's not otherwise exempt). The creditor will have to look elsewhere to make up the rest.
Don't comingle funds. But the process of sorting out funds can be complicated if you’ve co-mingled your money by putting both exempt and non-exempt funds in the same bank account. When you know that a creditor has a judgment against you, it’s a good idea to plan ahead and keep exempt funds in a separate account.
Funds you receive by check or transfer to another account. If you receive your benefits by paper check, or if you transfer the funds into another account after an initial direct deposit, the bank won’t automatically protect your money. You’ll have to go to court to prove that the funds are protected federal benefits that the creditor can’t take.
State Law Exemptions
Also, your state laws might provide protection against seizure for the money you have in a bank account. For example, states often exempt a certain percentage of an individual's income from garnishment by judgment creditors.
Some Creditors Don’t Have to Go to Court First
Some creditors, such as the IRS, can seize money from a bank account without first getting permission from a court.
IRS Levy Process
Before taking your money, the IRS will send you a “Notice and Demand for Payment” (a tax bill). The notice advises you that taxes are due, and it states the amount of tax, interest, and penalties.
How to protect your bank funds from an IRS levy. You might be able to avoid an IRS levy so don’t ignore any IRS billing notices. A few of the options for resolving your tax debt include: setting up a payment plan or settling your tax debt for less than the full amount you owe (called an “Offer in Compromise”).
Notice of an IRS levy. If you don’t pay the taxes or work out a resolution, the IRS will send a “Final Notice of Intent to Levy and Notice of Your Right to A Hearing” at least 30 days before seizing your account. The IRS may:
personally give you this notice
leave it at your home or your usual place of business, or
mail it to your last known address via certified or registered mail, return receipt requested.
Requesting a hearing. After you receive the notice, it's best to contact the IRS right away to resolve your tax liability. You can also request a hearing with the IRS if you think the levy is inappropriate. It's very important that you file your hearing request by the given deadline.
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Creditors can't get money or property from some people. Find out about what it means to be judgment proof.
Lean what to expect in debt collection.
Get information about how to find a debt relief lawyer.
Getting Help
If you already have a judgment against you and you want to avoid a bank account seizure, consider contacting an attorney. If you can't afford to hire an attorney, you may seek help from a legal aid office or legal clinic in your area.
