What is a Bank Account Garnishment and Is it Legal?

We’re all going through a financial crisis right now, following the restrictions imposed during the COVID-19 pandemic. And a number of people are seeing their bank accounts garnished from deficiency judgments in Florida from foreclosures from the last big financial crisis in 2008. But what exactly is bank account garnishment and is it legal? During this guide, we will outline what bank account garnishment is, whether your bank account can be garnished without notice, what happens when your account is garnished and what you can do about it.

What is a bank account garnishment?

Bank account garnishment refers to a debt collector suing you and taking money out of your bank account after you fail to repay your debts, whether you have failed to pay a medical bill, pay off a mortgage or pay your taxes. With garnishment, the collection agency is legally allowed to remove money from your bank account to repay the outstanding debt. This is usually a last resort that the debt collectors turn to when the debtor has repeatedly failed to pay the money they owe or repeatedly ignored requests to pay off their debts. These companies typically won’t take the legal steps needed to garnish someone’s bank account unless they have failed to settle the debt through phone calls and mailed notices.

The creditor legally needs to win a judgment in order to garnish your bank account. This means that the lender must file a lawsuit and an attorney must notify both the borrower and the court. In order to garnish the bank account and withdraw funds, the creditor needs an order of garnishment, signed by an official of the court. The Internal Revenue Service, or IRS, is the only organization that is legally allowed to garnish a debtor’s bank account without any judgment required.

Garnishing a bank account is very different from wage garnishment. With court-ordered wage garnishment, an employer is legally allowed to withhold a specific amount of money from the debtor’s paycheck and send it directly to the creditor. The debtor’s bank, therefore, plays no role in the wage garnishment, because the deduction occurs before the paycheck is even cashed. However, it is occasionally possible for a collection agency to garnish both a debtor’s bank account and their wages at the same time, but this is extremely rare.

Can your bank account be garnished without any notice?

The creditor is legally required to notify you after the bank account garnishment is approved in a court setting before actually contacting your bank to garnish your bank account. That being said, the bank is not legally required to inform you when the money is garnished from your bank account, but you might get an overdraft notification if the amount of the garnishment exceeds the available balance on your account. Bottom line, you should be notified, but the notice of garnishment will come from your creditor rather than your bank.

After your bank is notified of the account garnishment, the bank first needs to follow the court order of garnishment before following through on any transactions that you have scheduled. According to federal law, people who receive federal benefits have their last two months’ worth of deposits reviewed to see if any of the deposits are exempt. If you have been notified that your bank account is being garnished, you should notify your bank of the transactions to make sure that the funds are exempted if they should be.

What happens when your account is garnished?

When a creditor does succeed in garnishing your bank account, any money that is not exempt from garnishment will be frozen in your account and seized. Many banks will charge additional fees, usually called non-sufficient fund or NSF fees if the creditor tries to withdraw more money than you actually have in your bank account. Even if you are signed up for overdraft protection, banks are often legally required to fulfill the money transaction, and many banks will charge a separate additional garnishment if you do not have enough money in your account.

Depending on the laws where you live, bank account garnishment doesn’t usually mean that you lose your entire bank account balance. Most states have a bank account garnishment limit based on a percentage of your disposable income, meaning that debtors are allowed to keep enough money to meet their monthly living expenses. Specific types of income, like Social Security and other direct deposits from federal benefits, are protected against bank account garnishment to some degree in every state.

What can you do when your account is garnished?

So what exactly do you do when your bank account is garnished? In order to lift the garnishment, you can attempt to contact the creditor and negotiate payment options. You might be able to reduce your interest payments, decrease the total amount you owe or make partial payments to the creditor for a specific amount of time. But it is usually better to reach out to the creditor and bargain with them before the court-ordered garnishment is made. You should try to prevent the bank account garnishment from happening in the first place, rather than attempting to reverse or lift the garnishment.

You can also challenge the judgment in cases where you discover that the bank account garnishment happened in error or actually poses a serious financial threat to your well being. If you do decide to challenge the bank account garnishment, you should seek help from a lawyer and act as quickly as possible. You usually only have up to five business days to challenge the garnishment. You can also consider filing for bankruptcy but only as a last resort. Filing for bankruptcy will stop most collectors from filing lawsuits and garnishments, but keep in mind that you might still owe some money after filing for bankruptcy.

Want to learn more about garnishment and deficiency judgments? Visit the Van Horn Law Group’s website here or schedule a free consultation with our attorney by calling (954) 765-3166.