What is a Bank Account Garnishment?

Bank account garnishment, also known as a bank levy, is a technique which is used to recover money from people with substantial outstanding debts. Garnishment occurs after a legal judgment against the debtor occurs, and is done by issuing a bank with a court order which forces them to freeze a debtor's account or accounts, and to withdraw enough funds to satisfy the legal judgment. If the debtor's account does not contain enough money to satisfy the judgment, he or she will be liable for the remaining balance.

Creditors usually use other means to recover funds first. Classically, creditors place a lien on a debtor's property so that the property cannot be sold without satisfying the debt. Creditors can also use wage garnishment, in which a portion of an employee's wages are withheld by court order each month until the debt is satisfied, to recover a debt. However, in the event that a debtor is unemployed, the creditor can turn to bank account garnishment.

Any funds in deposit under a debtor's name can be subject to garnishment, with the exception of certain government benefits. Consumer advocates often advise people to hold exempt funds separately to avoid confusion and to make it easier to argue with a garnishment order. Jointly held accounts with a spouse are liable for garnishment, making it advisable to hold assets separately in a marriage where one spouse has outstanding debts, although jointly held accounts with people other than a spouse may be exempt.

Usually, no warning is given when a debtor is subjected to bank account garnishment, because the creditor does not want the debtor to withdraw funds in advance of the garnishment order. If a recent court proceeding has ended up in a ruling against a debtor and he or she has no assets to satisfy the debt and is unemployed, it may be safe to assume that bank account garnishment is in the near future. Debtors should also be aware that moving to a new state or transferring funds to a different bank will not allow them to evade garnishment, as creditors will use a skip trace to find all of the debtor's assets, and issue simultaneous bank levies in the event that assets are in multiple locations.

Once a court order has forced a bank to hold a debtor's funds, the bank will notify the debtor that his or her funds are frozen under a bank account garnishment. The debtor has an opportunity to appeal the garnishment or show that the funds are exempt, with the funds being released to the debtor after 21 days. In the event that the debtor's account has more funds than required by the order, the bank may freeze the entire account while it waits for the garnishment to be sorted out, or it may only institute a partial hold on funds.