Protecting a Bank Account from Creditors
To protect your bank account from creditors, you must understand the legal tools a judgment creditor can use to freeze your bank account and take the money in your account. In Florida and most other states, the judgment creditor’s legal tool to seize bank accounts is the writ of garnishment.
State statutes provide procedures for a judgment creditor to obtain a writ of garnishment against property of the judgment debtor. Bank accounts, money market accounts, safe deposit boxes, promissory notes, and other financial accounts are all subject to creditor garnishment writs.
Upon a bank or stockbroker’s receipt of a writ of garnishment, the bank or stockbroker will freeze all accounts where the judgment debtor is owner or co-owner without notice. A debtor may then find himself with no available money to pay living expenses or pay his own attorneys.
The garnished bank has a time period provided by law to file with the applicable court a response stating what accounts the debtor owns and how much money the garnished bank held in each account on the day the garnishment was served. The debtor is given the opportunity to assert a claim of exemption from garnishment for any of several grounds offered by state law.
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Most debtors maintain significant amounts of money in bank accounts or money market accounts at financial institutions. Bank accounts are a very attractive collection target for creditors for several reasons:
- They contain liquid assets that immediately can pay the creditor and his attorney.
- Every debtor needs his bank account money to pay his living expenses and attorney fees, and therefore, attacking the debtor’s liquid accounts exerts financial stress on the debtor.
- Obtaining a writ of garnishment against a bank account is a relatively simple legal procedure.
Protecting a Bank Account from Garnishment in Florida
In Florida, debtors can protect their bank accounts from garnishment by taking advantage of the state’s exemptions and garnishment procedures. Florida law exempts from creditor collection money from certain sources such as social security, retirement withdrawals, and annuity distributions. Florida courts have consistently held that money from an exempt asset retains its exemption after the money is deposited in the debtor’s bank accounts.
There are also procedural defenses to garnishment. Florida garnishment statutes impose upon creditors many procedural requirements and time deadlines. The garnishment rules are strictly enforced. A garnishment that deviates in any way from the statute’s garnishment rules should be dissolved and the funds released.
The garnishment statutes set out procedures for garnished debtors to assert a claim of exemption or other legal defenses to the garnishment. The debtor is required to challenge the garnishment in a court proceeding and obtain a court order to release garnished money. All the debtor’s garnished funds remain frozen during the time the debtor is challenging the garnishment in court.
A bank may not be held liable for retaining money in a garnished account during the time the debtor is pursuing a defense through court proceedings. However, there is an exception for social security proceeds: a garnished bank is required to release immediately from garnishment all money traceable to the debtor’s social security payments.
How to Open a Bank Account That No Creditor Can Touch
To open a bank account that no creditor can touch, you should take advantage of either exempt bank accounts or state laws that prohibit bank garnishments.
Exempt Bank Accounts
Where state law permits bank garnishments some accounts may be exempt from garnishment under applicable state law. For example, bank accounts owned jointly by married couples as tenants by entireties are exempt from garnishment by a judgment creditor of either spouse. The accounts are not exempt from creditors of both spouses, however.
A debtor does not have to reside in Florida to maintain an exempt entireties account at a Florida bank. Florida law exempts entireties accounts in the state regardless of where the owner resides. Beware that there are several legal technical requirements to open an exempt entireties account in some circumstances. It’s best to find a local Florida bank that expressly provides tenants by entireties accounts or a bank that is not vulnerable to garnishment outside of Florida.
Understand that if a creditor serves a writ of garnishment on a bank where the debtor maintains an exempt tenants by entireties accounts the bank will still freeze the account. The debtor typically hires an attorney to claim the exemption and have the court order the garnishment dissolved. A bank may not be held liable for retaining money in a garnished account during the time the debtor is pursuing a defense through court proceedings.
State Laws that Prohibit Bank Garnishments
A judgment debtor can best protect a bank account by using a bank in a state where the law prohibits garnishment against banking institutions. In that case, the debtor’s money cannot be tied up by a garnishment writ while the debtor litigates exemptions.
If a state’s laws do not permit creditor garnishment of bank accounts, then the debtor can maintain protected cash to pay living expenses and legal bills. The best scenario is one where the debtor does not have to himself reside in a state with protected bank garnishment laws. In such a scenario, any person throughout the United States could open an account in the protected bank regardless of residency and regardless of where the judgment was entered.
Some states, such as South Carolina, Maryland, North Dakota, New York, and New Hampshire, protect a small amount of money in a bank account from judgment creditors. There are a very small number of states that completely prohibit creditor garnishments of bank accounts without any limit on the amount of money in the account. However, most (but not all) banks in these states accept only customers that live in the state where the bank is located.
Frequently Asked Questions
What type of bank accounts cannot be garnished?
Almost every state in the U.S. allows a civil judgment creditor to garnish a bank account belonging to the judgment debtor. The laws of these states apply equally to any type of bank, whether it be a brick and mortar bank or internet bank. A bank that cannot be garnished would have to be solely located in a state that prohibits bank account garnishments. Otherwise, the creditor could serve a garnishment at a bank branch in an unprotected state.
Can a creditor garnish your bank account without notice?
Yes, in most states, a creditor can garnish your bank account without notice. If a creditor were required to give a debtor advanced notice that a judgment creditor was going to garnish an account, the the debtor would have the opportunity to empty the account in advance of the garnishment. Garnishments with notice would not be an effective collection tool.
How do creditors find your bank account?
Judgment creditors can find where a debtor maintains bank accounts by using a process called post-judgment discovery, or discovery in aid of execution. Post-judgment discovery refers to the creditor collection tools that allow a creditor to find out where the debtor holds assets that are available to satisfy a judgment. These tools include inspection of the debtor’s tax returns, bank statements, financial records, and the debtor’s own testimony under oath about his assets. There also are services that search national banking records to discover a debtor’s banking history.
Can an LLC bank account be garnished?
An LLC bank account can be garnished if there is a judgment against the LLC. However, if there is a judgment against the LLC owner, a creditor cannot directly garnish the bank account of the owner’s LLC. A creditor can obtain a charging lien against the LLC prohibiting the LLC from distributing money from the LLC account to a debtor member.
Can a creditor take all the money in your bank account?
In most situations, a creditor can take all of your money in your bank account if the money is not otherwise exempt. However, money in your garnished bank account that was deposited by a non-debtor who is co-owner of a joint bank account may be released from the garnishment freeze.
The non-debtor has to go to court to assert ownership of his money in the joint bank account. For example, if a judgment debtor shares title to a bank account with an elderly parent, the judgment debtor may defeat the garnishment by asserting that the funds do not belong to him despite his name appearing on the account title.
If your bank account is levied, can you open a new account?
A bank account levy, or garnishment, is a proceeding against your bank to turn over to the creditor any amount the bank owes to you (your account balance). However, the bank account garnishment is not an injunction on your personal banking decisions. In other words, you are free to open up additional accounts, whether at the same bank or any other bank.
Can a debt collector garnish a joint bank account?
In general, a debt collector can garnish the debtor’s interest in a joint bank account. The creditor has this ability even if the joint owner is not liable on the judgment. In addition, if the money in the account is derived solely from the non-debtor joint owner, then the debtor whose name appears in the account title could prove that the he has only bare legal title to the money and no equitable rights subject to garnishment. As stated above, joint accounts owned by married persons are exempt from garnishment directed at either spouse individually under the laws of Florida and a few other states.
Can a savings account be garnished?
Yes, a savings account can be garnished. A bank account garnishment makes no distinction between checking accounts, savings accounts, money-market accounts, online savings accounts, or CDs. It applies to all varieties of financial accounts.
How often can a creditor levy a bank account?
A creditor can repeatedly levy, or garnish, a bank during the life of a judgment. While the creditor cannot harass a judgment debtor, repeated levies or garnishments of bank accounts, alone, do not constitute harassment, especially if the funds in the bank account are generally not exempt.
Protecting your bank account from creditor levy requires understanding the legal tools a creditor will likely use to freeze your bank account and take your money in the account.
How long does it take to unfreeze a bank account?
There are many reasons why a debtor may claim exemption from garnishment of money in a bank account, including for example, accounts holding retirement funds, social security, or entireties accounts in the case of married debtor.
Most states provide that money from an exempt asset retains its exemption after the money is deposited in the debtor’s bank accounts The debtor must claim and prove his exemptions in court. The legal process typically last at least a month, but could go on for two months or longer if the creditor fights the claim of exemption.
How does a levy on a bank account work?
In a bank account levy, a judgment creditor first gets a court to issue a writ of garnishment based on the amount of the judgment. A writ of garnishment is directed towards a particular bank. Then, the creditor serves the bank with the writ of garnishment. A bank that has been served a writ of garnishment must, with few exceptions, freeze all accounts belonging to the judgment debtor. This even includes joint accounts.
In Florida, the creditor must follow strict procedures when garnishing your account. One of these procedures involves mailing you a copy of the garnishment documentation, including a Claim of Exemption form. If you file the claim of exemption, you may be entitled to a hearing on the claim and could try to have the garnishment dissolved.
How long does it take to garnish a bank account?
Typically 1-2 weeks. Once a judgment creditor files a motion for a writ of garnishment, the court will typically issue the writ within a few days. Some courts/judges take longer than others. Once issued, all a creditor has to do at that point is serve it onto the bank. This does not take long.
How to Hide Bank Accounts from Creditors
Judgment debtors sometimes want to know how to hide money from creditors. But, hiding a bank account from creditors is never a good asset protection strategy.
Judgment creditors can find where a debtor maintains bank accounts by using post-judgment discovery, or discovery in aid of execution. Post-judgment discovery refers to the creditor collection tools that allow a creditor to find out where the debtor holds assets that are available to satisfy a judgment. A creditor has several methods of forcing a debtor to answer questions under oath about the debtor’s financial accounts, cash on hand, and any other source of money that the debtor has available for his support. These methods prevent a debtor from effectively hiding a bank account from creditors, other than lying under oath. Creditor discovery tools include:
- oral deposition of the debtor under oath
- written interrogatories (a list of questions the debtor must answer under oath)
- requests to produce accounting statements and other financial documents
- Florida’s standard fact information sheet (a financial statement)
- Examination of the debtor’s federal tax returns that show bank interest income
Using a combination of these discovery methods, a creditor may identify all a debtor’s financial accounts wherever located or identify any person or company owning financial accounts on the debtor’s behalf.
If a debtor answers questions untruthfully, or provides misleading or incomplete answers, the debtor may be held liable for contempt of court and criminal perjury. Not only do false and misleading descriptions under oath expose the debtor to unnecessary civil sanctions or criminal liability, evasive answers will undermine the debtor’s credibility in subsequent court proceedings
Offshore Bank Accounts
Many attorneys advise clients to protect bank accounts from creditors and garnishments by opening offshore bank accounts that are not subject to U.S. garnishment statutes and writs..
However, U.S. citizens no longer can open offshore accounts in their individual name because of international anti-terrorism rules. Offshore accounts can only be established through newly formed asset protection entities such as offshore trusts or offshore limited liability companies set up through attorneys.
These offshore arrangements sometimes have disadvantages. Offshore entities and banking is complicated and expensive, and the debtor must relinquish control over these entities and their bank accounts to offshore trustees and managers to be effective asset protection. Transfer of funds to offshore entities are subject to attack as fraudulent conveyances under the fraudulent transfer statutes.
Last updated on April 22, 2021