Tuesday, November 30, 2010

Funds Exempt From Bank Account Garnishment

Its an all-too-common scenario: A consumer goes to pull money out of the ATM, buy groceries or pay for dinner and lo-and-behold! His card is no longer authorized. 

Did the bank make a mistake? Has he been robbed via identity theft? No, he's just another victim of the mandatory checking account freeze prior to bank account garnishment by a collection agency.

Funds Exempt From Bank Garnishment 

When your bank receives notice from a collection agency that it has a writ of garnishment in hand and intends to garnish your bank accounts, it will freeze your accounts and notify you of the garnishment after the freeze is securely in place. This prevents you from immediately moving your money to a safer place (which everyone with any sense would promptly do, given half a chance). 

Then again...your bank doesn't have the right to freeze everything. Your bank must release the following forms of income immediately:

  • Child support
  • Military annuities
  • Social Security
  • Retirement benefits
  • Survivor's benefits
  • Unemployment pay
  • Public assistance
  • Alimony
  • Workers' Compensation

Bank Account Garnishment Exemption Claims 

Don't think that your bank will be kind enough to look into your deposit records and determine for itself how much of your money is exempt from garnishment. No, its up to you to inform your bank of your exemptions, prove your case, and push the issue until your bank releases the funds. The U.S. Department of the Treasury clearly states that a bank cannot turn exempt funds over to a collection agency if the consumer has filed an exemption. 

Will your bank be kind enough to immediately mail you an exemption form? Maybe, but probably not. If you know you have funds that are exempt from garnishment within your bank account, be prepared to visit the bank in person, armed with copies of your checks and your deposit records to ensure that you can claim your exemptions and protect your bank account from seizure. 


  1. Thank you for this information!

    I am receiving unemployment, and after filing for bankruptcy last year, a private student loan was sent to collections. I have been paying 160$ a month since August. I was laid off from work in October and have still been paying the 160$ with my unemployment benefit. The collections agency is now wanting me to pay more. I started my own business, but it is slow going. I made 98$ last week, and don't want my unemployment to be garnished.

  2. Henry,

    Since you're already in collections and the collection agency can't touch your unemployment I hope you've stopped making the payments for the time being. And congratulations on starting your own business :)

  3. Is my bank account safe if it's a monthly Veteran disability deposit?

    1. If that's all that's in your bank account, yes. Veteran's benefits are exempt from bank levies unless the creditor is the federal government.

  4. can a collection agency garnish my wifes bank account in the state of California if i am not on the account. We were married in Illinois and are now live in caifornia (with Cali DL's). Also the agency has already garnished my job wages, which i left about a month ago. They are after me for Student Loans from 8 years ago.

    1. Yes. California is a community property state. As long as you incurred the debt after you got married, the collector has just as much right to collect from your wife as it does from you. It can sue her, garnish her wages, seize her assets, etc.

  5. I was served a notice to appear in court over a past debt. I contacted the law firm to see what needs to be done. They said if I made monthly payments they would notify the court and the proceedings would stop. I agreed to pay $50.00 a month. I have not received any paper work yet from the law firm and I have not made a payment yet.
    I live on Social Security and a survivors annunity from a former husband's government pension.
    I have now been contacted again by the same law firm about another debt.

    1. Your income is exempt from seizure. This means that, although the collector could sue you, it couldn't collect on its judgment. It's likely that the collector knew that and used the lawsuit as a tool to get you to pay voluntarily, since that's the only way they can hope to get any money out of you.

      Contacting the law firm and agreeing to make payments doesn't restart the SOL, but because your income is exempt from garnishment and levy (unless you owe a government debt)you don't have to make these payments. If you want the law firm to stop contacting you, you have the right to send them a cease and desist letter demanding that all communication with you cease. They may attempt to sue again. Be prepared for that. If you own property, they can place a lien against that property.

      I had a client in a similar situation a few years ago. I contacted the law firm and let them know that Social Security was her only form of income and she was exempt from judgment collection. The collection agency dropped the suit. There was no way for them to collect so suing my client would have been nothing more than a waste of money for the collector. So regardless of which route you take, you may want to make certain that the collector and its law firm are aware of the fact that you live on exempt income. If there is anything else I can help with, just let me know. Best of luck. :)

  6. Thank you for your help. I went to the bank on Saturday and said I wanted to fill out an exemption form to protect my Social Security and Gvernment Pension. They said they didn't have a form. That if a creditor notified the bank, they would freeze my money for 30 days.
    I am not sure what to do at this point. If they did that, I wouldn't be able to pay my rent, utilities, car payment and living expenses, etc.
    The law firm actually had some one serve papers on me at my house that I had to appear in court.
    When I called the law firm, they said they didn't have any other accounts going after me. I find it curious, that when I agreed to pay on the first one, they came up with another debtor. I am wondering if they contacted other companies I owe money to and said they would like to represent them.
    I have a feeling this is never going to end.
    As I stated before, I agreed to pay payments on the first debt, they have never sent me any paper work as of now, so I have not made any payments yet.
    I did inform them at the time, I lived on octal Decurity and a small survivors benefit from the government.
    When they served papers on me, was that just a scare tactic to get me to call them?

    1. I don't know who you talked to at the bank, but that isn't how it works. They aren't supposed to execute a freeze on accounts that contain exempt funds. The method you're describing is for regular, everyday accounts. Yours is fully exempt unless it contains paychecks or other forms of income that are not protected.

      If it were me, I'd make an appointment to sit down and talk to the bank president or, at the very least, the branch manager. Explain that your funds are exempt and, as such, cannot be frozen. Tell him what you told me, you need that money to pay bills. Please copy and paste the web address below into your browser. That will take you to a government website that explains exempt income and how to protect yourself. Feel free to print it out and take it with you to the bank.


  7. I was recently notified that I have been sued and lost by "default". I am a full time unemployed student. The only money that comes into my checking account is federal financial aid refund money with a LONG list of rules on how it is to be spent (books, transportation, ect), can this money be garnished?

    1. Can it be garnished? Yes. Should it be garnished? No. Federal aid and other money intended to be used for your higher education is supposed to be exempt from garnishment. That doesn't mean, however, that they won't try to take it. Make sure you talk to your bank and fill out an exempt income form should the collector try to dip into your account for your school money.

  8. What if your refund money and student loans are deposited to a check card like income tax returns? What if this bank/ checking account, used by your school for every student, states that they are not exempt from court proceedings? Will an exempt income form then be null in void or does the "law" protect this money?
    When you say "supposed" to be exempt from garnishment, it seems that the law has been broken. Where can I find this rule/law to protect myself or who do I talk to at my college to enforce this since all students are given this random bank/check card?