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Can a creditor or debt collector seize money from your bank account if you can’t pay your debt? It’s a terrifying scenario to someone who is just getting by and needs every penny to put food on the table, gas in the tank, and to pay their essential bills. Several of our readers have expressed this fear, or experienced it, firsthand:

  • Joan wrote that she was unemployed and was worried about a creditor taking money out of her bank account.
  • “Non” said a creditor wiped out her savings account.
  • Another reader said their bank account was seized to satisfy a court judgment they thought was taken care of when they were taxed for the “cancelled” debt.

The short answer is, yes. Funds in your bank account could potentially be at risk if you don’t pay your debts. But there are important limitations that apply.

Here, bankruptcy attorney Eugene Melchionne explains how it works in Connecticut, the state where he practices. The rules and procedures may be different in your state.

Sue Me

The first line of protection you have is the courts. Typically creditors can’t just dip into your bank account; they first have to get a court order to do so. Often that means they must successfully sue you and then get a judgment. Melchionne explains:

“In Connecticut (and in most states and in most situations), a creditor can only seize a bank account on a debt with a court order. This is usually after a judgment enters and other conditions exist (such as failing to pay the judgment). In Connecticut, this is called an ‘Execution of Judgment on a Bank Account’.” He notes that “sounds ominous,” and for someone facing that, it probably is.

In rare circumstances, he points out, there may be procedures that allow a creditor or collector to seize funds before judgment has been entered. But it’s not typical for most consumer debts.

However, there’s one very important exception: When you owe money to the same financial institution that holds your account, your money may be fair game.

Your Money Is Our Money

I have a car loan through the same credit union where I have a savings account. When I opened that account, the paperwork I signed clearly indicated that the balance in my account could be used to pay a debt owed to the credit union.

This is known as the “Common Law Right of Setoff,” says Melchionne. “This is where the state follows the old English Common Law and the bank account is held in the same bank to whom the money is owed. In those cases, the bank (or credit union) has the right to invade the bank account and take the money to satisfy the debt.” This action does not require a lawsuit or judgment first.

And even in states that don’t recognize this common law, Melchionne says that financial institutions typically make this part of the contract. “This is why I always advise my clients to move their bank accounts if they also owe money to that institution,” he adds.

But I Can’t Afford It

Chances are, if you have unpaid delinquent debt, it’s because you can’t afford to pay it. Having all or part of your bank account seized would likely create a hardship when it comes to paying other bills. Missing payments on other debts may, in turn, hurt your credit scores and compound your problems. Again, there may be some consumer protections in your state, but only if you know how to exercise them.

“Usually there are some safeguards such as a minimal amount that can be exempt from seizure in the account (in Conn., it is $1,000) and a procedure for claiming that exemption,” says Melchionne. “However, if you do not follow the procedure (for exercising your consumer protections), you could lose the entire bank account to the creditor, not to mention the bank fees for administering the court papers. (It seems they have a fee for everything.)”

Joint Account Danger

If you share a joint savings or checking account with someone who is delinquent on their bills, you run the risk that the account could be seized — including your funds in the account. “If it is truly a ‘joint’ account, then both parties to the account (or three or four) are all considered 100% owners of the account at all times,” he notes. “So a judgment against one of the owners is as good as a judgment against all of the owners of the account, which is to say an execution filed against any one owner can result in loss of the entire account.”

In fact, Melchionne recommends elderly clients give their adult children Power of Attorney on their parents’ account if they need to write checks or manage bills, rather than adding them onto the account as joint account holders – “especially if the child has bad debt.” Of course, he notes, there’s always the risk that the person with Power of Attorney could steal from the account.

Exception to the Rules

Of course, like any area of law, there are exceptions to the rules. “There are whole books written on this subject,” says Melchionne. But a few key exceptions are worth pointing out. If the only funds in your account come from sources like Social Security income, those funds may be protected under a regulation titled “Garnishment of Accounts Containing Federal Benefit Payments.” In addition, custodial or trust accounts get different treatment, says Melchionne, and “some states recognize ‘Tenancy by the Entirety’ or ‘Community Property’ which gives a spouse special rights in marital property or property acquired during the marriage.” Talking with a consumer law attorney in your state is one of the best ways to find out what laws apply to your situation.

How to Protect Yourself

First, be very careful about allowing a friend, relative or significant other to share your checking or savings account. It’s particularly risky if they can’t get their own account because they have credit problems. Your funds could literally be at risk if a creditor comes after them.

If you have unpaid debts, it’s essential that you get your free annual credit reports to find out whether there are any judgments listed. Then take advantage of free credit monitoring tools to watch for changes in your credit scores (which you can check for free on Credit.com) that could indicate a new collection account or a new judgment. Surprisingly, a significant number of consumers don’t realize that they were sued for a debt and that the creditor or collector obtained a judgment — often because they didn’t show up.

If you discover there is a judgment against you, or if you are being sued for a debt, talk with a consumer bankruptcy attorney. (You can find one through the National Association of Consumer Bankruptcy Attorneys.) Even if you don’t want to file bankruptcy, the attorney can explain what the creditor may be able to do to collect from you — including whether they may be able to seize money from your checking or savings accounts. If it’s unlikely you’ll be able to pay the debt soon, bankruptcy may be your best option for protecting the money in your accounts and putting the debt behind you.

More on Managing Debt:

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  • Jess

    I have debt and 2 accounts in judgement and my bank account is levied. I am a full time student and its hard for me to pay anything back at the moment. through school I got a pre paid debit card that any extra money from my student loan and grant goes onto and I use try hat money for books etc and then pay my student loan with remaining money.. my question is can they levy the pre paid debit card and take my student loan money?

    • http://www.Credit.com/ Gerri Detweiler

      Jess – Please talk with a consumer bankruptcy attorney. Many offer a free initial consultation. You need to understand what they can and cannot do to collect from you. Exemptions vary by state so a local attorney is your best bet for answers.

  • http://www.Credit.com/ Gerri Detweiler

    I am sorry but I just don’t understand the question. Can you try to clarify the situation?

  • http://www.Credit.com/ Gerri Detweiler

    Ah I see. They may have to repeat the request but I wouldn’t count on that stopping them from trying. If this creditor has a judgment against you and is trying to go after your bank account please talk with a consumer bankruptcy attorney right away to find out what your options are.

  • http://www.Credit.com/ Gerri Detweiler

    It’s hard to say and would depend on the fact and circumstances of the situation. Since you are in foreclosure, I would strongly recommend you consult with a consumer protection attorney. Visit the website of the National Association of Consumer Bankruptcy Attorneys if you need help finding one.

  • Tammy

    Dear Gerri.. Me and my husband struggling with installment loan. We got in too deep and it hard to get out of our situation.we are living with his SSI and my SDI .I haven’t been work for almost a year due too my back and knee injury.Im now 60 yrs old and my husband 76 yrs.Most of loan I did it online and they wire to our account.the interest it more than 388%we keep pay it off and loan more from other. We end up have 5 loan total amount combine almost 10k..
    It sunk real quick since I stop working. We afraid to be homeless and unexpected cost of my husband insulins are $400: mo due to gap of his Medicare insurance .I have try to reach a debtor explain my situation but it no sympathy on their part. We will be end up with a lot of judgement against us.How can we prevent from become a homeless. We rent apartment I have 19 yrs old car.we own no property.but I’m afraid it will go against our bank account which we only have enough to pay rent and utilities bills.only payment that I concern it my son car payment we bought under our name he use for collage ( 40 mile away). Please tell me what worst scenario I can get from those judgement that will be against us soon I need to be prepare. Thanks so much for your time: Tammy

    • http://www.Credit.com/ Gerri Detweiler

      Tammy – Please, please meet with a consumer bankruptcy attorney. Due to to the source of your husband’s income, your bank accounts may be safe but I think it would be really good for you to sit down with one who can look over your situation, and answer your questions to give you some peace of mind. Visit the website of the National Association of Consumer Bankruptcy Attorneys if you need help finding one in your area. The first consultation may be free or inexpensive. (You may not even have to file to be protected, but again, I’d like you to talk with someone who can walk through it with you.)

  • Jenn

    Dear gerri, my husband has a bank account where all of our credit payments and bills go through. We have no prior debt in his name and a good credit score. However, a debt creditor has emptied our account twice leaving us with severe money problems. When we call this law office they laughed in our face and insisted it’s our problem. We think because my husband is a junior they may be confusing him with his father who does in fact have many debt collectors looking for him. We have explained this to this law office who again, laughed and didn’t care. How can we stop the bank withdrawals and get our money back?

    • http://www.Credit.com/ Gerri Detweiler

      Two suggestions: Have your husband get his free credit reports at AnnualCreditReport.com and see if there is a judgment listed. Also contact a consumer protection attorney. Their actions may be illegal and your husband may be entitled to damages as a result. (Visit the website of the National Association of Consumer Advocates if you need help finding one in your area.) Will you let me know what happens?

  • Kendrick

    Hello Gerri, there is already a garnishment on my paycheck and low a judgement on my bank account. The law firm just cleanup my bank account. Should there be a limitation a creditor can take from us? We still have to live and other bills to pay….I am in Minnesota

    • http://www.Credit.com/ Gerri Detweiler

      This must be enormously stressful for you. Unfortunately in most states judgments have a separate statute of limitations, and it’s often a long period of time (and can be renewed). We recommend consumers who have judgments they can’t pay see a bankruptcy attorney right away to discuss their options.

  • Yari

    Hello Gerri. I am married and i have a 20 month old and one on the way. My husband has a couple of bills in collection. 3 are hospital bills, too much for us to pay and have a living. Of course, no good credit. We have a joint bank account, like i said he has bad credit. Will this affect my score? And also, i want to open a savings account under my sons’ name. If i do open that savings account, can collection get into my sons’ account?

    • http://www.Credit.com/ Gerri Detweiler

      @Yari – I am sorry to hear about the stress you are under financially. The first thing I’d suggest you do is to consider at least talking with a credit counselor and/or a bankruptcy attorney to find out what your options are for getting out from under the hospital debt.

      Secondly, if you have your own income, you may want to open a separate bank account. If your husband is sued for the debts they may try to go after the joint account and your money may be at risk.

      If you and your son have a savings account that money probably will be safe since the creditors are going after your husband’s assets, not yours. But if you live in a community property state it’s possible those funds could be at risk. That’s why I’d encourage you to at least talk with a consumer bankruptcy attorney to find out what your options are.

  • Carey

    Hi Gerri. I was separated from my common law husband fourteen years ago. At that time he ran up our credit card. Now out of the blue I am getting letters from a debt collector. I haven’t responded. Can they do anything after all of this time?

    • http://www.Credit.com/ Gerri Detweiler

      Probably not, unless there was a judgment against you. Check this as a guideline:
      Statute of Limitations On Debt Collection by State. If the debt is too old you can send them a letter stating the debt is too old and asking them to stop contacting you. Send it with proof of delivery and keep a copy for your records. Keep an eye on your credit reports and score too. It sounds like it’s too old to report but not a bad idea to check. One tool you can use is our free credit score.

  • candace

    My son has a bank account (savings and I am on it as he was under 18 ) can they take his savings ? even though it is ultimatly his account ? Being a single parent is rough !

    • http://www.Credit.com/ Gerri Detweiler

      Yes it’s possible.

  • SuedByA Crook

    Hi,
    I have a judgement against me. I have moved out of the state off to college and has also closed the account that I have given the lawyer. Can the lawyer find my new account by using my SSN#. Can they also find out what college I attend. Trying to buy some time till I can pay or settle.

    • http://www.Credit.com/ Gerri Detweiler

      Skip tracing for debt collection is pretty sophisticated. It’s unlikely that you will be able to fend them off indefinitely.

  • wondering…

    I have a checking account line of cedit that went into collections at my bank for 400. I have 2 loans and a savings account went them that are all in good standing. The delinquent accounts department never sent me any coreapondance they just sent my acct to an attys office. I received a complaint that yhe attorney wanted 800 for the account. I responded with an answer within a week that I did not agree with the amount of 800 and I was willing to pay 600 which I thought was more then fair. The attorney never responded nor did o receive any legal notices. Fast forward a few months later I get a federal student loan deposit into my savings. I pay 800 on my loans with the bank that morning. Later on that went to make a withdrawal and could not. The manager at the bank called the attorney told him that I had a deposit and the amount. The attorney the same day supposedly obtained a judgement (never seen) and they froze my 5000 in my account. The bank and attorney then said if I didn’t pay 1350 they were not releasing any of my 5000. My questions is did the bank employee have the right to call the attorney and tell him the details of my account in order to obtain a judgement. Also can they lock up more then the judgement amount? I feel like its extortion

    • http://www.Credit.com/ Gerri Detweiler

      The short answer is, “I don’t know.” It’s a little hard for me to understand exactly what happened here. But you do mention that you had an account that went delinquent with the same financial institution where you had deposit accounts. If that’s the case, they may have obtained the right, when you opened the account, to offset deposits to pay for delinquent debts.

      You also mention a judgment, though, and in order to get a judgment they must sue you which means you must get a legal notice of the lawsuit (usually a complaint and summons). Only after they get a judgment can they try to obtain money from your bank accounts, and even that can be limited under state law.

      I wish I could tell you exactly what your rights are here but this is matter that you need to run by a consumer law attorney. You may want to check with your local
      Legal Aid, or if that’s not an option, then a consumer bankruptcy attorney who will be familiar with the process in your state.

  • Concerned

    My mother-in-law recently had a hospital’s debt collection agency take all the money she had in her bank account. She had been paying them on time every month prior to this event. She is afraid she may become evicted because now her rent check will bounce. This will cause her hardship, especially in a state where housing is very difficult. Is there a way she can be protected from this, and are there steps to recover what they froze/removed from her account? Is she able to fight back?

    • http://www.Credit.com/ Gerri Detweiler

      Please have her talk with a consumer bankruptcy attorney asap. She can find one through the National Association of Consumer Banikruptcy Attorneys. If they can’t help encourage her to get in touch with Legal Aid.

  • raj cool

    Hello Gerri, I am an International Student. I came in 2007 on Student Visa and left the Country in 2011 due to my visa status issue. I have 3 to 4 of Credit Card payments amounts due around 12k. I was not able to pay amount before leaving the country as I was out of job for more than a year. I am not sure if I am summoned or sued by the credit card companies as I was not in the Country for more than 3.5 years. I haven’t received any email from the credit card companies nor collection departments. I came back this year 2015 on same Student Visa again. Recently, I got an update from my friend who stays in the address I use stay on my previous visit. He received couple of mails on my name from collection department for settlement but that is from only couple of credit card companies not sure of other credit card companies. Can you please suggest me how to deal with this situation.

  • Tbailey

    In the state of Texas does a creditor have to get a court order to freeze your checking/savings account? Can they garnish your husband’s if he wasn’t married to you at the time the judgment was field and debit was occurred, and you are not on his checking/savings account?

  • rae

    Hi gerri i have a debt with an apartment agency from college back in 2009. They have garnished my wages before but I’m currently not working. Could they take money from my bank account, since I’m no longer working?

  • Dee

    Hi. I live in NY. I set up my income tax return to be directly deposited into my checking account. I have some past due debts but my account has never been frozen. I was wondering if creditors are able to see or have a way of knowing when there are going to be deposits made into my account. Also, there will be less then a thousand dollars in my account after the deposit. Will they be able to freeze or take money from my account?

    • Jeanine Skowronski

      Generally, creditors can also get access to or the ability to put a garnishment on your bank account if they have received a judgement against you.

      Thanks,

      Jeanine

      Jeanine

  • Ken Syntlo

    Someone used my name to get electricity. Now there’s a bill for 3000.00 hurting my credit report. How will I know if they go for my checking account. Do they have to inform me if there is a court appearance I have to show up for.

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