How to Protect Your Bank Account from Creditors
To protect your bank account from creditors, you first have to start with learning the collection laws in your state. When one party to a lawsuit is awarded a money judgment against the other party, the presiding judge is not going to write a check to the prevailing party. 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 those cases, the prevailing party—the judgment creditor—must take steps to collect the money from the judgment debtor.
The lawsuit loser—the debtor—tries to resist payment and make it difficult for the winner to collect the judgment. Judgment debtors need legal advice about how they may protect money after losing a lawsuit.
Protecting your bank account from creditors means understanding what legal tools a creditor will likely use to collect money on a judgment and then using legal methods to guard against those tools.
Without protecting your bank account from creditors, you may result with a frozen bank account as a result of the bank account garnishment.
Protecting a Bank Account from Garnishment
To protect your bank account from garnishment, the typical strategy is to take advantage of state law exemptions and garnishment procedure. Most states exempt certain money from creditors, and the garnishment statutes also give the debtor a chance to state a claim of exemption or other legal defenses to the garnishment. For example, money deposited from social security is exempt from garnishment, and many states exempt retirement plan proceeds held in bank accounts.
A bank account garnishment is one of the most common tools a judgment creditor uses to collect money from a judgment debtor (or someone that has lost a lawsuit). Almost all states enable a judgment creditor to serve a writ of garnishment on your banking institution or your stockbroker without giving prior notice to the debtor account owner. Upon receipt of the garnishment writ, the bank will freeze all the debtor’s bank accounts.
The bank has a time period provided by law to file with the applicable court a response stating what accounts the debtor owns, or shares ownership in, and how much money was in each account on the day the garnishment was served.
How to Open a Bank Account that No Creditor Can Touch
To open a bank account that no creditor can touch, you would need to locate and open an account at a bank located in a state whose laws prohibit garnishment against banking institutions. Opening an account at one of these banks protects your money without without the expense and complications of offshore banking.
In most situations, you do not need to live in the state with favorable bank account garnishment laws in order to protect and open an account at that bank.
As part of our asset protection planning, we may be able to help determine if a bank account that cannot be garnished is right for you.
What a Bank Account Levy Is and How it Works
Upon receipt of a garnishment writ or levy, most banks will freeze any and all accounts where the judgment debtor is owner or co-owner. Even if the debtor has possible defenses or exemptions, all his accounts remain frozen while he asserts his defenses in court proceedings. After a bank garnishment, a debtor may find himself with no available money to pay living expenses or even pay his own attorneys.
Bank garnishments often deprive judgment debtors’ access to a substantial amount of their liquid assets without notice.
How Often Can a Creditor Levy a Bank Account?
Under Florida law, a creditor can repeatedly levy, or garnish, a bank account during the life of the judgment. While the creditor cannot harass a judgment debtor, repeated levies or garnishments of bank accounts, alone, does not constitute harassment, especially if the funds in the bank account are generally not exempt.
A bank account can be garnished without notice under Florida law. This makes sense: if the creditor had to notify you in advance before it garnished a bank account, you would simply withdraw all of the account funds prior to the garnishment being served on the bank. The garnishment system only works because it can be done without notice.
Can a Creditor Take All the Money in Your Bank Account?
You may be surprised to learn how much can be garnished from a bank account. In most situations, a creditor can take all the money in your bank account if the money is not otherwise exempt.
If the account contains your wages, you may have an argument that only 25% of the amount should be subject to the garnishment, but this will generally require being able to trace the garnished funds to your wages. Of course, if an exemption applies to the funds, then you should be able to have the garnishment dissolved.
In some situations, under the laws of certain states including Florida law, money completely sourced to another individual may be exempt under state garnishment procedures. For example, if a judgment debtor shares title to a bank account with an elderly parent, the judgment debtor may be defeat the garnishment by asserting that the funds do not belong to him despite the titling of the accounts.
How Do Creditors Find Your Bank Accounts?
Creditors can find your bank accounts if you have a judgment against you by using a process called post-judgment discovery, or discovery in aid of execution. Under Florida law, or the laws of the state where you live, post-judgment discovery refers to the creditor collection tools that allow a creditor to find out where you have bank accounts and other financial accounts. These tools include inspection of the debtor’s tax records, financial records, and the debtor’s own testimony under oath. There also are services that search national banking records to discover a debtor’s banking history.
How to Hide Money from Creditors
Clients sometimes want to know how to hide money from creditors or what is the best way to hide money legally. But hiding a bank account from creditors is never a good asset protection strategy.
A creditor has several methods of forcing you to answer questions under oath about your accounts, your cash, and any source of money that you have for support. These methods prevent you from hiding an account from creditors. Some of these methods include:
- take your deposition
- serve interrogatories (a list of questions you must answer)
- request documents
- serve a fact information sheet
Using these methods, a creditor may simply ask you to identify all your financial accounts wherever located or identify any person or company with possession of your assets. If you answer questions untruthfully or provide incomplete answers you may be committing perjury. Not only do false and misleading descriptions under oath expose you to additional sanctions or criminal liability, your evasive answers will undermine your credibility in subsequent court proceedings.
Therefore we generally do not recommend hiding a bank account from creditors as a useful asset protection strategy.
Many attorneys advise clients to protect their bank account from creditors and garnishments by opening offshore bank accounts that are not subject to U.S. garnishment statutes and writs. U.S. citizens no longer can open accounts in their individual name become 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 have disadvantages. First, offshore entities and banking is complicated and expensive, and control over these entities and their bank accounts must be relinquished 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 and laws enacted in every state.
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.