Funds Exempt From a Bank Account Seizure

Find out how to protect money in your bank account from levy or garnishment by a judgment creditor.

By , Attorney · University of the Pacific McGeorge School of Law

If you've found out that a judgment creditor is trying to drain your bank account—known as a bank levy or garnishment—you'll need to move fast to preserve your funds. Although every state has a procedure for objecting to a bank levy, you'll likely have ten days or less to file the paperwork. The good news? If you're successful, you'll be able to keep all or most of the funds.

In this article, you'll learn about:

  • funds creditors can't touch
  • protecting bank account funds
  • arguments to use when fighting a seizure
  • finding state exemption procedures, and
  • stopping collection actions by filing for bankruptcy.

Funds Exempt from Creditor Seizure

Some types of money are automatically exempt (protected) from your creditors, regardless of where you live, including:

  • Social Security and Supplement Security Income (SSI)
  • federal, civil service, and railroad retirement benefits
  • veterans' benefits
  • student loan disbursements and aid, and
  • FEMA aid.

However, just because your funds are protected doesn't mean that you can rest on your laurels. If a creditor attempts to take the money, you still have to follow your state's procedure for claiming that it's exempt. In most states, you'll file a form with the court and appear at a hearing before a judge.

How to Protect Exempt Bank Account Funds Proactively

At the hearing, the judge will review the paperwork to ensure that the funds are exempt, which might prove difficult if you've commingled them with other money in the same account. Here are some tips that will help you maintain the exempt status of your funds.

  • Direct deposit. It will be easier for you to verify an exemption if the government deposits the funds directly into your account, and your bank must protect two months of exempt fund deposits.
  • Exclusive account. The best way to get around a commingling problem is not to commingle the funds in the first place. Keep protected funds in a dedicated account. Use a separate bank account for nonexempt funds.
  • Cash checks. If you know that a creditor has a judgment against you and you don't want to worry about losing your money, don't put the funds in a bank account. A creditor can't get what isn't there.

Other Bank Levy or Garnishment Objection Arguments

Here are a few other arguments you might be able to raise in your paperwork.

You Need the Funds for Basic Living Expenses

Many people need every penny to make ends meet each month, and courts know this. You can argue that you need your entire bank balance for necessary living expenses. Many courts will consider this if you're the primary caretaker of a child or other dependants.

The Creditor Has a Wage Garnishment

State and federal law limit the amount a creditor can take from your paycheck. In most cases, it's 25% of wages after taxes. However, it can be more if the garnishment is for a domestic support obligation, taxes, or a student loan. If the creditor has already taken the maximum deduction allowed through your paycheck, tell the judge. The creditor shouldn't be able to double-dip by hitting your bank account, too. Learn more about how much a creditor can take by wage garnishment.

The Levy Is for More Than You Owe

Sometimes mistakes are made. If you owe less than the bank plans to turn over to the creditor, let the court know. Also, you'll want to object if you paid the judgment or agreed to pay in another way, such as through installment payments.

How to Find Your State Levy Exemption Procedures

First and foremost, you don't have much time. You'll need to get your paperwork on file within a matter of days—often ten, but it could be less. Here are some techniques for finding the information you need.

Offices that handle this type of problem often try to make it easy to find this information. So start by checking the website of any of the following: your state court, your county or small claims courthouse, the local law library or bar association, or the sheriff's office. For instance, here are a few state resources:

  • New Jersey Courts provide a pamphlet explaining New Jersey bank account levy objections.
  • On the website of Georgia's Council of Magistrate Judges, you'll find a Notice to Defendant of Right Against Garnishment of Money, Including Wages, and Other Property
  • The Sacramento County Public Law Library provides information regarding asking the court to stop a bank levy in California.
  • The New York City Bar Association explains New York's levy protections and the form needed to object to a levy.

Take a look at the language and procedures used—it's all relatively similar across the states. That said, it is imperative to find the steps you'll be required to take. Use the documents to familiarize yourself with terms you can use in a Google search. For instance, you'll likely want to include the following: your state or county name, levy and garnishment (states use the words interchangeably), objection, exemption, form, and bank account.

You're looking for the forms you'll need to file, plus instructions. Most courts will want an exemption, an objection, or an order to show cause form, along with a financial statement and supporting documents. Be sure to serve the paperwork on the creditor. Your state will have rules on the service procedures, as well.

Also, most state exemption laws protect property from creditor collections and bankruptcy. Start by learning about property exemptions in bankruptcy.

Filing for Bankruptcy to Prevent Account Seizure

No one wants the feeling of dread that accompanies worrying about an account being emptied. If you have a judgment against you and can't afford to pay, filing for bankruptcy could be an excellent way to go—especially if the debt is a type you can erase.

For instance, Chapter 7 works well for personal loans, medical bills, and most credit card balances. If you qualify, you'll be able to wipe out the debt in about four months. Better yet, you won't need to make any monthly payments.

Keep in mind, however, that you can't eliminate all debts in bankruptcy. For instance, priority debts aren't dischargeable. Examples of priority debts include domestic support obligations and some income tax arrearages. Even so, wiping out other commitments, such as credit card debt, frees up income filers can use toward debts they're stuck paying.

If you have debt that won't go away in bankruptcy, you might be better off filing for Chapter 13. Chapter 13 allows filers to repay nondischargeable debt over a three- to five-year repayment plan. Filers who want to avoid a wage garnishment find that they can do so using Chapter 13. You can also discharge more debt in Chapter 13 than Chapter 7.

Find out whether you'd be better off filing for Chapter 7 or Chapter 13.

Talk to a Bankruptcy Lawyer

If you're not sure how to work through your debt problems, make an appointment with a local bankruptcy attorney. Most can tell you whether it makes more sense to file for bankruptcy or to pursue some other option. And in many cases, the first consultation is free.

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