Can a Creditor Take Money out of my Bank Account?
Under what circumstances can creditors take (“seize”) my bank account?
If you have money in a savings or checking account with a bank, credit union, savings and loan, or similar institution, creditors may try to seize funds in it to enforce a judgment that was entered against you.
As a general rule, the creditor can do this only after you have been sued and after the Court has granted a Judgment against you. There are, however, some exceptions, including tax seizures and child support matters. You should seek legal advice if you have these types of debts. Another exception is the“setoff,” which is explained further below.
How does a judgment creditor seize my bank account, and what are my rights?
If the creditor follows proper legal procedures, your account will first be "frozen" by Court Order; in other words, you cannot withdraw any money from your account. You will not necessarily be notified in advance that your account will be frozen. Usually, your first notice will come from the bank.
However, you have important rights if your creditor seeks to freeze and seize your account, including:
- Notice of the "freeze".
- Certain funds which are exempt from seizure.
- A prompt hearing to release any exempt funds.
What kind of notice am I entitled to?
Your financial institution must send you a written notice within one working day of the freeze on your account. The Notice must contain:
- Notification that your account has been or will be frozen.
- Notification that under Law, certain funds are exempt from seizure.
- Notification of your right to a prompt hearing.
- The Court's address and number, and a form by which you may request a hearing.
What is protected from seizure by creditors?
The following funds are exempt from seizure, even after they have been placed in an account. "Exempt" means that by State or Federal Law, they cannot be seized by creditors to satisfy a Judgment or for any other purpose. These funds include:
- Social Security benefits.
- Veterans benefits.
- Certain retirement and disability pension benefits.
- One Hundred Dollars ($100) of any other funds.
- Some or all funds from joint depositors.
Certain other funds may be exempt (see an attorney and/or request a hearing if you have any doubt.)
How do I request a hearing, and what happens at the hearing?
To get a hearing, immediately fill in the form you received with your Notice. Send it or take it to the Court. Make two copies; keep one and send the other to the creditor's attorney (or the creditor if there is no attorney.) The Court should set the hearing in five days or less; call the Court to get the hearing date and time.
Before you go to the hearing, make a list of all sources of funds in your account. If you have Social Security, Veterans', or pension benefits, bring documents from the Social Security Administration, Veterans Administration, or pension fund proving your receipt of such funds. If you have both exempt and nonexempt funds, it is important that you calculate, as accurately as possible, how much of your account comes from each source.
Bring this information with you to the hearing, and refer to it while testifying. Be on time for the hearing. The Court will decide what part of the account is exempt and therefore must be returned to you.
Note that your bank may deduct up to $30 from your account for processing the papers, $15 of which goes to satisfy the Judgment. If your account is exempt, however, you get this money back.
Also note that if you do not request the hearing, your account may be frozen up to 90 days, and all funds (up to the Judgment balance) may be seized by the creditor.
What if another person’s name is on my bank accounts?
If your spouse or anyone else is a joint depositor in your account, he or she has the same rights to Notice and hearing as you do.
If the joint depositor also has a Judgment against him or her in the same case, your joint depositor has the same exemptions as you do. If this person was not sued, however, none of his/her money may be seized from the account. It is very important that, before the hearing, both depositors figure out how much money each has put into the account over the past few months.
What is a “setoff?” How does it differ from a seizure of bank accounts?
The right to “setoff” exists if your creditor is the bank or institution at which you have your account. For example, if you have fallen behind on a loan to ABC Bank, and your savings account is also at ABC Bank, it may have the right to “setoff.” This means that the bank will withdraw funds from your account to pay the loan or obligation, without your consent, and without the right to a hearing. Note, however, that it still may not seize Social Security, Veterans, or other exempt funds.
When should I seek legal assistance?
You should seek legal assistance in the following situations:
- You believe your account was wrongfully frozen, seized, or set-off.
- You did not receive proper notice or were denied a hearing.
- You believe exempt funds (like Social Security) were taken.
- You believe the Judgment was wrongfully entered against you.
Last revised: 7-2003
LSC Code: 1020199