How to Open a Bank Account That No Creditor Can Touch

Can Creditors Garnish Your Bank Account?

Creditors can garnish your bank account if they obtain a court judgment against you. A creditor must serve a garnishment order on your bank, freezing funds up to double the judgment amount. Exceptions apply for protected income such as Social Security or disability benefits.

How to Open 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 contains funds protected from garnishment under federal or state law. These accounts include social security, government benefits, homestead accounts, wage accounts, and tenancy by entirety accounts. Creditors can legally sieze exempt money from these accounts if you prove the exemption applies.

Tenancy By Entirety Accounts

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 located in the state regardless of where the owner resides.

There are several technical requirements to open an exempt entireties account. The best strategy is to find a state-chartered Florida bank that expressly provides tenants by entireties accounts.

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 who 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 the 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 Your Bank Account Be Garnished Without Notice?

A bank account can be garnished without prior notice after a court judgment is entered against you. Creditors are not required to warn you before freezing funds. State law requires the creditor to notify you about the garnishment after the account is frozen. The notice explains your rights in the garnishment process.

How Does Bank Account Garnishment Work?

A bank account garnishment is a court-authorized action that allows a creditor to take money directly from your bank account to repay a debt. I

In Florida, bank account garnishment is authorized by Chapter 77 of the Florida Statutes. First, a judgment creditor requests that a court issue a writ of garnishment. Once issued, the creditor serves the bank with the garnishment.

The bank must freeze all accounts that have the debtor’s name on the title and all safe deposit boxes. Exempt bank accounts are still frozen during the garnishment proceedings.

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.

A bank may not be held liable for freezing money in a garnished account during the garnishment process.

How Long Does It Take to Garnish a Bank Account?

A creditor can garnish a bank account immediately after a money judgment is entered. The creditor can then garnish your bank account at any time during the 20 year lifespan of a judgment. The garnishment process lasts on average between 2 to 4 months.

How Much Can Be Garnished from a Bank Account?

There is no limit to how much money that can be garnished from your bank account to satisfy a judgment. If a judgment is entered against you, the court can authorize your creditor to garnish all of the money in your account up to the judgment amount.

In Florida, a bank can freeze up to double the amount of the judgment during garnishment proceedings.

What States Protect Bank Accounts from 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.

How to Stop a Bank Account Garnishment

You can stop a bank account garnishment by filing a claim of exemption or objecting to the garnishment in court. You must prove that the funds in the account are exempt or that the creditor did not strictly follow garnishment law.

You must provide the court documentation to stop a bank account garnishment. The key documents are prior bank statements, tax returns, and the account signature card.

How to Hide Bank Accounts from Creditors

You cannot legally hide bank accounts from creditors.

Judgment creditors can find out 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.

Instead, you can protect money in your bank account by using legal methods such as forming trusts, opening accounts in protected entities like LLCs, or placing funds in exempt accounts.

How Does a Creditor Find Out Where You Bank?

The most common ways a judgment creditor can find out where you bank are:

• 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
• fact information sheet (a financial statement)
• examination of the debtor’s federal tax returns that show bank interest income

Using a combination of these methods, a creditor can identify a debtor’s financial accounts wherever located or identify any person or company owning financial accounts on the debtor’s behalf.

What Happens if You Don’t Reveal Your Bank Account to the Creditor?

Attempting to hide your bank accounts can result in severe legal penalties and court sanctions. 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.

Using a Business to Avoid Bank Account Garnishment

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