Protecting a Bank Account from Creditors
To protect your bank account from creditors, you must take advantage of the collection laws in the state where you live. When a court awards one party to a lawsuit a money judgment against the other party, the presiding judge will not write a check to the prevailing party. The judge will merely issue a written order of judgment. In some cases, the losing party voluntarily pays the judgment. In other instances, the losing party is either unable or unwilling to pay. In those cases, the prevailing party—the judgment creditor—must collect the money from the judgment debtor using collection tools afforded by the state’s collection statutes.
Typically, 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 because:
- They contain liquid assets.
- The creditor knows that the debtor needs his bank account money to pay his living expenses and attorney fees.
- Obtaining a writ of garnishment against a bank account is a relatively simple thing for the creditor to do.
Bank Account Levy
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. In Florida and most other states, the creditor’s legal tool to seize bank accounts is the writ of garnishment.
Chapter 77 of the Florida Statutes provides 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 assets 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.
Can You Open a Bank Account that No Creditor Can Touch?
To open a bank account that no creditor can touch, you must bank in a state whose laws prohibit garnishment against banking institutions. Under some circumstances the debtor does not have to reside in a state with favorable bank garnishment laws to protect accounts from garnishment.
We may be able to help determine if a bank account that cannot be garnished is right for you.
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 another individual may be released from the garnishment freeze.
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.
How Often Can a Creditor Levy a Bank Account?
Under Florida law, a creditor can repeatedly levy, or garnish, a bank during the life of the Florida 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.
The creditor does not have to provide any notice to the debtor prior to serving the writ of garnishment. This makes sense: if the creditor had to notify the debtor in advance before it garnished a bank, the debtor would simply withdraw all of the account funds prior to the garnishment being served on the bank. The garnishment system is an effective collection tool because it can be done without notice and done as often as the creditor suspects a financial institution is holding the debtor’s money.
How Do Creditors Find Bank Accounts?
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.
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.
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. Some of these methods that prevent hiding bank accounts 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)
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.
Therefore, hiding a bank account from creditors is not an effective asset protection strategy.
Protecting a Bank Account from Garnishment
Debtors can protect their bank accounts from garnishment by taking advantage of Florida’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.
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. First, 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.
What to Do Next
Our clients are typically concerned with protecting their bank account from garnishment. If you are facing a potential judgment, or already have one entered against you, we may be able to help protect your bank account from creditors. While most of our clients live in Florida, we are often able to help people living outside Florida with this particular issue as well. Contact us to get started.
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