How to Open a Bank Account That No Creditor Can Touch

What Is a Bank Account Garnishment?

A bank account garnishment is a legal process that allows a creditor to freeze funds from your bank account to collect an unpaid judgment. If the money in the account is not exempt, then the creditor will be awarded the money in the account to help pay off the money judgment.

Bank account garnishments are the most popular collection method used by creditors. The process involves (1) obtaining a court judgment against the debtor, (2) filing a garnishment request with the court, (3) serving the garnishment order on the debtor’s bank, and (4) freezing the owed funds from the account to satisfy the judgment.

You can stop a bank account garnishment by filing a claim of exemption or objecting to the garnishment. If you show that the account contains exempt funds or that the creditor did not follow the correct legal procedures, then the court may dissolve the garnishment.

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 a bank account protected from garnishment under state or federal law. Money in an exempt bank account cannot be seized. The most common types of exempt bank accounts are tenancy by entireties accounts, wage accounts, retirement accounts, and homestead accounts.

For example, bank accounts jointly held by a debtor and their spouse are protected from garnishment. These accounts are exempt from garnishment if only one spouse is the debtor. However, joint accounts are not exempt from creditors of both spouses.

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.

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.

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, any 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 have laws 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.

Can My Bank Account Be Garnished Without Notice?

Yes, your bank account can be garnished without prior notice. A bank account garnishment occurs when a creditor obtains a court order to freeze funds in your account to satisfy a debt. While creditors must notify you of the lawsuit that leads to the garnishment, they are not required to warn you before the garnishment happens.

Once the bank receives the garnishment order, your funds are immediately frozen. Only after the money is frozen will you receive notice of the garnishment.

The notice of garnishment will explain your rights in the garnishment proceeding and the process for claiming any exemptions you have.

What States Prohibit Bank Garnishment?

Bank account garnishments are legal in almost every state. However, five states prohibit bank account garnishments for low account balances: South Carolina, Maryland, North Dakota, New York, and New Hampshire. Four states prohibit wage garnishments for consumer debts: Texas, North Carolina, South Carolina, and Pennsylvania.

What Is a Bank Account Levy?

State laws allows the temporary freezing of a bank account, which is called a bank garnishment or bank levy.

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.

Under Federal collection law, government agencies can levy bank accounts to satisfy government debt such as sanctions, fines, or restitution orders.

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 Are Legal Defenses to Bank Account Garnishments?

You can stop a bank account garnishment by asserting state exemptions or procedural defenses., Here are the most common defenses:

State Exemptions

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.

Procedural Defenses

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.

Social Security Deposits

Social security payments cannot be garnished by a judgment creditor.

Even after a bank receives a writ of garnishment, it must immediately release 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.

Using a Business Account to Avoid Bank Garnishment

You can use a business bank account to avoid garnishment of your personal money.

A person who owns a business can keep funds in their business instead of distributing it 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.

How to Hide Bank Accounts 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.

A creditor can find out where you bank by through a deposition, written interrogatories, bank records, fact information sheet, or a review of federal tax returns.

Creditors can usually identify a debtor’s financial accounts wherever they located or identify any person or company owning financial accounts on the debtor’s behalf.

What Happens If You Don’t Tell the Creditor Where You Bank?

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.

How Much Can Be Garnished from a Bank Account?

If a judgment is entered against you, the court may authorize your creditor to garnish your bank account, allowing them to freeze all of the funds in your account. Once the bank levy is imposed, your access to the funds will be restricted.

The amount that can be garnished from a bank account depends on the nature of the funds and applicable exemptions. There is no fixed limit to the amount a creditor can freeze if they obtain a valid court order.

Exempt money in a bank account may not be taken through a garnishment. This includes Social Security benefits, disability benefits, veterans’ benefits, retirement funds, head of household income, and money held as tenants by entireties.

If your account contains exempt funds, you must file a claim of exemption promptly to protect them. Otherwise, the creditor could take all of the funds in the account.

How Long Does It Take to Garnish a Bank Account?

The entire garnishment process can take 2-3 months.

First, the creditor must request a writ of garnishment from the court, which may take a few days to process.

Once the writ of garnishment is issued, it is served on the bank. The bank will immediately freeze your accounts.

You will then be notified by the bank and the creditor about the garnishment. You will have 20 days to file a claim of exemption if you believe your funds are protected. If the funds are not exempt, the creditor will ask for a final judgment of garnishment, and the bank will release the funds to the creditor.

Can You Still Open a New Account While It’s Garnished?

When your bank account is garnished, you can still open a new account. A bank account garnishment against one bank does not prevent you from opening other bank accounts.

Frequently Asked Questions