How to open a bank account that no creditor can touch

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

An “exempt bank account” is an account that contains funds that a creditor cannot use to satisfy a money judgment.

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.

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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.

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.

Example Use of a Protected Bank Account

James is an unmarried Florida resident with an old judgment for an unpaid credit card bill. The creditor has not tried to collect on its judgment for many years, so James has built up a substantial balance in his bank account.

The judgment creditor has scheduled a deposition in aid of execution, so James is worried that the creditor will find out where he has bank accounts. Because he’s not married, he cannot take advantage of tenants by entireties law to protect the bank account. There are no other exemptions to the money in the account.

In this situation, James may be able to protect the funds by depositing them at a bank immune from garnishment under state law. The creditor’s collection tool would normally be a garnishment. But if the funds are at a bank where state law prohibits garnishment, the money effectively would be protected from the judgment creditor.

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.

States That Prohibit Bank Garnishment

Bank account garnishments are governed by state law. Some states have laws that limit a creditor’s ability to garnish a bank account. Here are the states that prohibit bank account garnishments when the account holds only a small amount of money:

  • South Carolina
  • Maryland
  • North Dakota
  • New York
  • New Hampshire

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.

Finally, some states have laws that prohibit wage garnishments for consumer debts. These states include:

  • North Carolina
  • South Carolina
  • Pennsylvania
  • Texas

Bank Account Levy

A bank account levy is a legal tool in some states where a judgment creditor seizes a bank account to collect on its judgment. In these states, the law differentiates between a garnishment (used for wages) and a bank account levy (used for money the judgment debtor has in a bank account).

To obtain a bank account levy, a creditor first must petition or motion a court to freeze the bank account. The creditor serves the order to levy at the bank. The bank will comply with the order and allow the creditor to fully withdraw all funds from the account to satisfy the judgment.

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.

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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 to determine 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.

What type of bank accounts cannot be garnished?

Almost every state in the U.S. allows a civil judgment creditor to garnish a judgment debtor’s bank. The garnishment laws apply equally to any type of bank, whether it be a brick and mortar bank or an internet bank.

A bank that cannot be garnished must have all its branches located in a state that prohibits bank account garnishments. Otherwise, the creditor could serve a garnishment at a bank branch in an unprotected state.

If my bank account is levied, can I open a new account?

Yes, a new account can be opened because the bank account garnishment is not an injunction on the debtor’s personal banking. In other words, the debtor may open additional accounts, whether at the same bank or any other bank.

How do creditors find your bank account?

Judgment creditors can find where a debtor maintains bank accounts by using post-judgment 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 testimony under oath about their 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.

How much can be garnished from a bank account?

In most situations, a creditor can take all of the money from your bank account through a garnishment, up to the amount of the judgment. Exempt funds cannot be taken. In addition, money in your 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 must go to court to assert ownership of their money in the joint bank account. For example, suppose a judgment debtor and their elderly parent are joint owners of a bank account. In that case, the judgment debtor may defeat the garnishment by asserting that the funds do not belong to them despite their name appearing on the account title.

Can a joint account be garnished?

A joint account can be garnished even if the joint owner is not liable for the judgment. 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 they have only bare legal title to the money and no equitable rights to the account subject to garnishment. 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, safe deposit boxes, 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.

How long can your bank account be frozen for?

A bank account is frozen until the garnishment process is fully resolved. Garnishment litigation typically takes 2 to 4 months. Garnishment litigation takes time to resolve a debtor’s claim of exemption or objections to the creditor’s garnishment procedures.

How does a bank garnishment work?

A judgment creditor first gets a court to issue a writ of garnishment based on the amount of the judgment. In Florida, the creditor must follow strict procedures when garnishing a debtor’s account. A writ of garnishment is directed towards a particular bank. Then, the creditor serves the bank with the writ of garnishment.

A bank served a writ of garnishment must, with few exceptions, freeze all accounts belonging to the judgment debtor, even joint accounts. A creditor may ask the court for a sealed writ of garnishment so the debtor does not get notice through search of the court docket. If the debtor claims that money is exempt from garnishment, the debtor is entitled to an expedited court hearing on the exemption defense.

How long does it take to garnish a bank account?

Typically 1 to 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, the creditor serves the bank garnishment documents, and the bank freezes all accounts with the debtor’s name on the title.

Can debt collectors see your bank account balance?

A judgment creditor cannot see your online account balances. But a creditor can ascertain account balances using post-judgment discovery. The judgment creditor can subpoena a bank for bank statements or other records which reveal a typical balance in the account.

Can Cash App be garnished?

Yes, Cash App and similar electronic funds wallets can be garnished. Cash App is run by a company called Block, Inc. The Cash App Terms of service explicitly states that they will adhere to garnishment orders and may freeze, withhold, or give up funds in your account in response to a legal garnishment order.

Can a debt collector take money from my bank account without authorization?

A debt collector must first file a lawsuit against you and obtain a monetary judgment before it can take any money from your bank account. Until a judgment is obtained in a court proceeding, a debt collector cannot take money from your account.

Gideon Alper

About the Author

I’m an attorney who specializes in asset protection planning. I graduated with honors from Emory University Law School and have been practicing law for almost 15 years.

I have helped thousands of clients protect their assets from creditors. Before private practice, I represented the federal government while working for the IRS Office of Chief Counsel.