Can Debt Collectors Take Money From Your Bank Account?

It’s a nightmare scenario: you’re on vacation, or nearly out of gas, or trying to buy dinner for your date when your debit card refuses to work. You call your bank to correct the mistake only to discover that there is no mistake – one of your creditors cleaned you out!

Is this legal? Or did someone overstep? Can debt collectors take money from your bank account?

Unfortunately, the answer is sometimes yes. 

When Can Debt Collectors Take Money From Your Bank Account?

The good news is that most debt collectors cannot just contact your bank and take your money. In most cases, they must file a lawsuit, and they have to win. Once a debt collector wins its lawsuit, it becomes a judgment creditor.

At that point, if you have not taken steps to satisfy the judgment or agreed to a payment schedule to repay the debt, the judgment creditor can request an order directing the bank to freeze your bank account. When a judgment creditor presents your bank with this court order, it must comply.

This act of freezing your bank account and taking your money to satisfy a judgment creditor is called a garnishment, a levy, or an attachment of your bank account.

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When Can Creditors Garnish Your Bank Account Without a Court Order?

Some creditors do not have to sue you to take money from your bank account. Government agencies like the IRS and the US Department of Education just have to provide you notice of the intent to garnish or levy. Other federal and state agencies may also be able to freeze your bank account for obligations like unpaid child support.

Finally, your own bank or credit union might be the culprit. Banks or credit unions can take your money from an account to cover a loan with them if you’re behind on your payments. The legal term is “right of offset”  or “right of setoff.” Typically, this right applies to installment loans or mortgages but not credit card debt. 

When you open a bank or credit union account, the right of offset is spelled out in the agreement you sign. Credit unions might have more freedom to garnish your account than banks. For instance, they might be able to take funds for past-due credit card debt when a bank would not be able to do that. Banks or credit unions might even be allowed to apply the right of offset to a joint account that you have with someone else.

Understanding Court Orders and Bank Account Garnishment

In most cases, a creditor or debt collector needs to first sue you for unpaid debt. If they win a judgment and secure a court order against you – in accordance with state and federal law – they can then request a garnishment order from the court. 

A garnishment order could allow the creditor to access your bank account to fulfill the debt. Without this order, any attempt to pull funds from your account is illegal, and could be contested in a court of law. 

If a court has issued an order to garnish your bank account, it's required under federal law to send you a notice, but only if two criteria are met: 

1. You received payment in the form of federal benefits sometime in the last two months, and these benefits are protected. 

2. You also have money in your account that's not automatically protected.

You can expect the notice to include key information such as: 

• Creditor 

• Type of debt and how amount owed 

• Financial obligation the garnishment will fulfill (i.e., unpaid taxes, student loans, child support, alimony) 

• Instructions on how to dispute a garnishment, such as where to file, deadline to file, and what information to include. 

The bank might still send you a court order even if it's not required by the federal law. That's because it might still be required to send you the order under state law. You can also ask your bank for the copy of the garnishment order, or reach out to the creditor or court for more details.

How to Avoid Bank Account Garnishment

If you have reason to fear bank account garnishment, take steps now to prevent it. 

1. Keep your head out of the sand

Bank account garnishment shouldn’t be a surprise. You know when you can’t pay your bills and start missing payments. And ignoring the consequences just makes them worse. So don’t throw away notices from creditors even if they make you queasy. Stay in contact and arrange an affordable repayment plan with your creditors. 

If you don’t get sued, you avoid most kinds of garnishment. And if you do get sued, show up in court. Even if you know that you’re going to lose. You can’t ask for an affordable payment plan if you don’t make your case.

Similarly, the IRS and other government agencies will provide notice that they intend to levy your bank account before they do it. If you don’t throw away those notices unread, you’ll know what’s happening and can take steps to avoid garnishment. 

2. Don’t borrow where you bank

When you look for a mortgage, auto loan, or other financing, don’t borrow from the same institution that houses your savings. What if it’s too late for that? If you have a loan that’s going sideways, open an account elsewhere, transfer your money to the new account and stop direct deposits to the old one before it’s too late. 

3. Protect social security deposits

Treasury Department rules require banks to review any account subject to garnishment. Banks usually can't freeze social security benefit deposits without ensuring you have access to two months of benefits. There are exceptions, including garnishment for past-due child support and federal taxes. However, if your social security money is mixed in with other deposits in the same account, or if you have more than two months of deposits, your account isn’t 100% safe from a levy.

4. Open an account that creditors can’t garnish

Certain types of bank accounts cannot be garnished, depending on the state in which you bank. For instance, in a few states like Florida, the joint bank account of spouses cannot be garnished by the creditor of one of the spouses. (If both spouses owe that creditor, there is no protection.) It also pays to know the laws in your state covering protected deposits. 

Some states prohibit bank account garnishment entirely. However, most (but not all) banks in these states will not accept out-of-state customers, so that’s little help unless you live in one of those states.

5. Tips to Safeguard Your Bank Account from Garnishment

To protect your bank account from garnishment, know your rights and take the proper steps: 

• Avoid keeping large amounts of unprotected of cash in bank accounts. One way to go about it is to set up a separate account for exempt funds – like Social Security, child support disability benefits. Exempt funds are protected by federal law. 

• Stay informed on your financial situation. While it might be easier to shove everything under the proverbial rug, open and read any legal notices or court summons you receive. If you don't, you could be blindsided by unexpected garnishment. 

• If you feel your account might be at risk, you may want to ask an attorney or legal aid clinic to help you navigate the process and possibly contest or steer clear of the garnishment.