Facing the possibility of having your bank account garnished can be extremely scary and frustrating. But if you’re smart about how you structure your finances, there are certain protections you can put in place to lower your risk of having money removed from your accounts.
When you go on the hook for debt, you put yourself on the hook for repaying that debt. And if you don’t follow the agreed-upon debt repayment schedule, then there are other methods that creditors can use to recoup their money.
“If you have outstanding unpaid debt, creditors may be able to garnish your bank account,” Upsolve.org explains. “This is either called a bank levy or account garnishment. It is similar to a wage garnishment except it’s on your bank account instead of your paycheck, and some of the rules are different.”
Bank account garnishment doesn’t happen overnight. (It’s not like you miss one payment and suddenly your creditor is withdrawing money from your checking account.) Usually, there has to be a court order and/or some other very specific filings to make this happen.
When it comes to amounts, creditors are legally only able to garnish 25 percent of your disposable income limit for wage garnishments. However, with bank account garnishment, there are no limitations. That being said, there are some exemptions and strategies that you can use to prevent this from happening.
Tips and Strategies for Preventing Bank Account Garnishment
Don’t automatically assume that bank account garnishment is going to happen. Be proactive and put some defenses in place to ensure it doesn’t happen. Here are several ideas:
1. Negotiate With Creditors
Often, creditors prefer to avoid the lengthy and costly legal process of garnishment. If you’re transparent about your financial struggles and willing to negotiate, many creditors might be open to discussing a compromise, such as reducing your debt or changing payment terms.
When negotiating, maintain a calm and polite demeanor. Be honest about your financial situation and willingness to pay off your debts. Make sure to get any agreements in writing and keep records of your communication.
2. Set Up a Payment Plan
A good payment plan is an effective way to avoid garnishment. It lets you restructure the debt and consolidate things into a single payment so that you don’t have to worry about paying lots of smaller debts spread out across different accounts.
Make sure you’re realistic with a plan that fits your budget. Assess your income and expenses and determine what you can afford to pay regularly without defaulting. It does you no good if you agree to a payment plan that you can’t actually abide by. This will end up putting you even deeper in the hole.
3. Get Creative
Who said there’s no room for creativity in finance? Work with professionals to see if there are clever ways you can deal with your debt and prevent bank account garnishment.
“For example, in Florida and some other states, bank accounts owned jointly by married couples as tenants by entirety are exempt from garnishment by a judgment creditor of either spouse,” attorney Gideon Alper points out. “The accounts are not exempt from creditors of both spouses, however. Tenants by entirety ownership of bank accounts is governed by 655.79 of the Florida Statutes.”
This is just one example of a creative method for approaching the threat of account garnishment. Depending on your location, the creditors, and the specific debt you have, there may be others worth exploring.
4. Consider Bankruptcy
In some situations, filing for bankruptcy may be a valid option to stop most types of garnishment. When you file for bankruptcy, an automatic stay comes into effect, which prohibits most creditors from continuing with collection activities, including garnishment.
However, bankruptcy isn’t something you take lightly. There are real consequences attached to it – some of them long-term in nature – so take your time and carefully walk through every layer of bankruptcy prior to pursuing this path.
Adding it All Up
Having your bank account garnished feels personal and violating. Thankfully, it doesn’t have to be like this. If you’re willing to put in the work to find other creative solutions, you can protect yourself and avoid this experience altogether. Hopefully, this article gives you some ideas as you move toward a better financial future!
Featured Image by Drazen Zigic on Freepik
