How to Open a Bank Account That No Creditor Can Touch

Most debtors keep significant amounts of money in bank accounts or money market accounts at financial institutions. One of the first things a creditor will do to collect on a judgment is garnish a bank account.

Bank accounts contain liquid assets that can immediately pay the creditor and their attorney. Every debtor needs bank account money to pay living expenses and attorney fees, so attacking the debtor’s bank accounts puts financial stress on the debtor. And obtaining a writ of garnishment against a bank account is a relatively simple legal procedure.

What Is a Bank Account Garnishment?

A bank account garnishment is a legal tool that a creditor can use to collect on its money judgment. Bank account garnishments are allowed under most state laws. If the money in the account is not exempt, then the creditor will be able to obtain the money in the account to help pay off the money judgment.

Bank account garnishments are the most popular collection method. They are relatively quick and inexpensive to do, and they can be rewarding to the creditor if there is a lot of money in the account.

Opening a Bank Account That No Creditor Can Touch

There are four ways to open a bank account that no creditor can touch: (1) use an exempt bank account, (2) establish a bank account in a state that prohibits garnishments, (3) open an offshore bank account, or (4) maintain a wage or government benefits account.

1. Open an Exempt Bank Account

In Florida and some other states, 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. Tenants by entireties ownership of bank accounts is governed by 655.79 of the Florida Statutes.

A debtor does not have to reside in Florida to maintain an exempt entireties account at a Florida bank. Florida law exempts entireties accounts located in the state regardless of where the owner resides. Beware that there are several technical requirements to open an exempt entireties account at those banks that do not offer an entireties option on the account application. It’s best to find a state-chartered Florida bank that expressly provides tenants by entireties accounts and where the entireties designation is expressed on monthly statements.

Understand that if a creditor serves a writ of garnishment on a bank where the debtor maintains an exempt tenants by entireties account, the bank will still freeze the account. The debtor will have to hire an attorney to claim the exemption in a court proceeding 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 attempting to dissolve a garnishment writ through court proceedings.

2. Open a Bank Account in a State That Prohibits Garnishments

A judgment debtor can best protect a bank account by using a bank in a state that prohibits bank account garnishment. 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, the debtor can maintain protected cash to pay living expenses and legal bills. Ideally, the debtor does not have to reside in the state with protected bank garnishment laws. That way, a Florida debtor could open an account in the protected bank.

Even fewer states completely prohibit creditor garnishments of bank accounts no matter the amount of money in the account. However, most (but not all) banks in these states only accept customers that live in the state where the bank is located. It can be challenging to find a bank located exclusively in a state that prohibits bank account garnishments that nevertheless accepts Florida customers.

3. Open an Offshore Bank Account

An offshore bank account is a bank account located outside the United States. While not technically an exempt account, in practice it is very difficult for a judgment creditor to reach funds sitting in an offshore bank account. The most well-known offshore bank account is a Swiss bank account, but most offshore bank accounts offer a similar level of protection to domestic creditors.

For example, in Florida, a court must have jurisdiction over the offshore bank and over the funds themselves to issue a garnishment directed towards the offshore bank.

4. Open a Wage Account or Government Benefit Account

Some states, such as Florida, have statutes that exempt the garnishment of wages of the head of the family. In addition, most federal benefits, such as social security or disability payments, are exempt from garnishment by federal laws.

Protection of these funds remains after they are deposited into the debtor’s bank account, but only if the judgment debtor can trace the funds to their exempt source. Tracing is easiest when a bank account contains only funds from the exempt source. Judgment debtors should not mix exempt and non-exempt funds in the same bank account.

Can a Bank Account Be Garnished Without Notice?

Yes, a bank account can be garnished without notice. A judgment creditor does not need to tell you in advance that it intends to garnish your bank account. If a creditor were required to give a debtor advanced notice of a bank account garnishment, then the debtor would have the opportunity to empty the account in advance of the garnishment.

Under Florida law, a creditor must notify you about a bank account garnishment only after first serving the garnishment on the bank. Once the garnishment documents are served on the bank, the bank will freeze the account. The garnishment notice should explain your rights in the garnishment proceeding and the process for claiming any exemptions you have.

How Can You Protect a Bank Account from Creditors?

Judgment debtors need a bank account to secure their savings and future income. Nobody wants to deposit money in a bank account only to lose it to garnishment or bank account levy. People with judgments often want to know how to open a bank account that no creditor can touch.

These are the four best ways to open a bank account that is protected from creditors:

1. Open an exempt account, such as a joint marital account as tenants by entireties. Tenants by entireties assets are exempt under Florida common law if the debt is only owed by one spouse.
2. Maintain a bank account in a state that prohibits a judgment creditor from garnishing the bank.
3. Open an offshore bank account to make garnishment complicated and expensive.
4. Maintain an account with only exempt funds, such as social security or pension plan distributions. These funds are exempt per Florida or federal statutes.

Which States Prohibit Bank Garnishment?

There are five states that prohibit bank account garnishment when the bank account contains only a small amount of money: South Carolina, Maryland, North Dakota, New York, and New Hampshire. In addition, North Carolina, South Carolina, Pennsylvania, and Texas all prohibit wage garnishments for consumer debts.

Depending on the type of judgment, there are other states where banks are totally immune from bank account garnishment. However, for most people, there are only a few banks in the U.S. that cannot be garnished to satisfy a monetary judgment.

Bank Account Levy

A bank account levy allows a judgment creditor to seize money from a person’s bank account. To obtain the levy, a creditor must (1) file a motion for the court to freeze the bank account, (2) serve the levy order to the bank, (3) notify the judgment debtor that the account has been frozen, and (4) obtain a judgment for the bank to turn over the funds if the debtor does not prove an applicable exemption.

In Florida, bank account levies are called garnishments. Florida law allows the temporary freezing of the account, allowing the judgment debtor to claim any exemptions before the funds ultimately go to the judgment creditor.

Under Federal collection law, government agencies can levy bank accounts to satisfy government debt, such as sanctions, fines, or restitution orders.

Bank Account Garnishment Procedures

In Florida, bank account garnishment is authorized by Chapter 77 of the Florida Statutes. Under Section 77.03, a judgment creditor can request that a court issue a writ of garnishment. Once issued, the creditor serves the bank with the garnishment. Under section 77.06 of Florida law, the bank must freeze all accounts that have the debtor’s name on the title and all safe deposit boxes.

Understand that creditors garnish banks—creditors do not garnish bank accounts. The creditor does not have to identify accounts or other assets at the debtor’s bank. Upon receipt of a writ of garnishment, a bank must freeze all accounts that are owned in whole or in part by the judgment debtor.

Banks are not responsible for determining whether the judgment debtor has applicable garnishment exemptions. The debtor has the burden of asserting exemptions applicable to certain accounts or of proving that the money in any account belongs to someone else.

What to Do When Your Bank Account Is Garnished

If your bank account is garnished, you should:

1. Review the source of funds in the account. Was the money deposited from an exempt source, such as a retirement account or an annuity? Or, do the funds belong to a non-debtor co-owner?
2. Obtain the signature card. If it is a joint account with a spouse, ask your bank for a copy of the signature card to make sure the account is owned as tenants by entireties.
3. Fill out a claim of exemption. If the funds in the account are exempt by statute, you must file a claim of exemption to dissolve the garnishment.
4. Evaluate the garnishment procedures. Review what the creditor filed in the case and see if they violated any aspect of state garnishment law.

Defenses to Bank Garnishment

Florida debtors can protect money in their bank accounts from garnishment by taking advantage of the state’s exemptions and garnishment procedures. Florida courts have consistently held that money distributed to a debtor from an exempt source retains its exemption after the exempt money is deposited in a bank account.

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.

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.

A judgment creditor can still try to garnish a bank even if the debtor’s accounts have only exempt funds. A creditor is rarely liable for an unsuccessful writ of garnishment.

How to Hide Bank Accounts from Creditors

Judgment debtors sometimes want to know how to hide money from creditors. Hiding a bank account from creditors is usually not an effective asset protection strategy.

Judgment creditors can find where a debtor maintains bank accounts by using post-judgment discovery, or discovery in aid of execution. 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. The creditor’s many discovery tools prevent a debtor from effectively hiding a bank account from creditors, other than lying under oath.

Some 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 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, but evasive answers also undermine the debtor’s credibility in subsequent court proceedings.

Proper asset protection planning does not involve hiding assets from creditors.

Can a Bank Account in Another State be Garnished?

An out-of-state bank account cannot be levied by a Florida court. Several Florida courts have ruled that a garnishment requires both in-personam and in-rem jurisdiction. In other words, the Florida court must have jurisdiction over both the judgment debtor and the funds being garnished.

When the funds are located at a bank account outside Florida, the court lacks in-rem jurisdiction, meaning that the Court does not have jurisdiction over the bank account itself.

Some creditors have tried to argue that modern bank accounts are not located in any state, which would alleviate the requirement of in-rem jurisdiction. Courts have rejected this argument so far.

Offshore Bank Account Protection

Many judgment debtors consider opening offshore bank accounts that are not subject to U.S. garnishment statutes and writs.

However, U.S. citizens cannot easily open offshore accounts in their individual names because of international anti-terrorism rules. Offshore bank accounts can typically only be established through asset protection entities such as offshore trusts or offshore limited liability companies set up through attorneys.

Offshore trust arrangements have disadvantages. Forming offshore entities and offshore 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. Transfers of funds to offshore entities are subject to attack as fraudulent conveyances under the fraudulent transfer statutes.

Some offshore banks have recently allowed U.S. individuals to open an account individually without forming an offshore LLC or offshore trust.

Business Bank Accounts

Using a business bank account can be an effective way for an individual judgment debtor to avoid a bank account garnishment of personal funds. A person who owns a business can keep funds in their business instead of distributing the funds to themselves.

If the creditor has a judgment against the individual and not the business, the creditor cannot garnish the business bank account directly. Instead, the creditor must focus its collection efforts on the debtor’s ownership interest in the business.

The creditor could levy on the debtor’s stock in a corporation. If the business is a partnership or a  multi-member LLC, then the judgment creditor’s exclusive remedy in Florida would be a charging lien on any distributions from the LLC to the judgment debtor. If the LLC does not make any distributions, then the creditor gets nothing.

There are sometimes ways for the judgment debtor to obtain money in a multi-member LLC or partnership bank account without the LLC having made a distribution. The methods available depend on the language in the LLC operating agreement or partnership agreement.

Frequently Asked Questions

Below are answers to commonly asked questions about bank account protection.