What is a garnishment?
Garnishment is a legal process
that allows creditors to collect debts by taking money directly from a debtor's paycheck or bank account. If you're struggling with debt and are at risk of garnishment, using a prepaid debit card can be an effective way to protect your funds.
What is a prepaid debit card?
A prepaid debit card
is a payment card that allows you to load funds onto it in advance. Unlike a traditional debit card, which is linked to a bank account, a prepaid debit card is not connected to a bank account. This means that funds loaded onto a prepaid debit card
can be protected from garnishment.
How prepaid debit cards can help avoid garnishment
When you load funds onto a prepaid debit card, those funds are held in a separate account. Creditors cannot access these funds, even if they have a court order to garnish your wages or bank account. Additionally, prepaid debit cards can be used to receive wages or government benefits without risking garnishment.
How to choose the best prepaid debit card for you
When selecting a prepaid debit card to avoid garnishment, there are several factors to consider. First, look for a card with low fees, including monthly maintenance fees, ATM fees, and transaction fees. Second, consider the card's features, such as the ability to receive direct deposits and set up automatic bill payments. Finally, make sure the card has good customer support, in case you run into any issues or have questions.
Garnishable prepaid cards
A garnishable prepaid card is a card that is linked to a bank account or financial institution regulated by the Federal Government. This means that if you owe a debt, the creditor may be able to garnish the funds on your prepaid card to satisfy the debt. There are two types of garnishable prepaid cards:
Bank-Issued Prepaid Cards
These prepaid cards are linked to a savings or checking account, which means that debt collectors can easily find them in your credit report. If you don't withdraw the funds on these prepaid cards in time, it may be too late to do so if the creditor obtains a favorable judgment from the court.
Open-Looped Prepaid Cards
Open-looped prepaid cards are linked to your Social Security number (SSN). While in general, creditors cannot garnish a Visa or Mastercard prepaid card, they can do so if they know that the card exists and is linked to your SSN.
Non-Garnishable Prepaid Cards
Store Gift Cards: Immune to Garnishment
Let's start with store gift cards. If you have physical gift cards from a specific store, such as Barnes & Noble
, and they add up to $300, can debt collectors garnish them? The answer is no. These cards are prepaid and can only be used at the designated store, making them exempt from garnishment.
Open-Looped Prepaid Cards: A Risky Option
If you have a Visa or Mastercard prepaid card that is not linked to a bank account or Social Security Number (SSN), it may seem like a safe bet to use as a form of payment. However, if you inform debt collectors about this card, they can garnish it. To protect your assets, it's best to keep this type of card to yourself.
Reloadable Closed or Semi-Closed Prepaid Cards: A Secure Choice
Reloadable prepaid cards, such as those from Starbucks
, fall into the closed or semi-closed prepaid card category. These cards can be used like a credit or debit card but are not linked to a bank account or SSN. As such, they are immune to garnishment, making them a secure choice for protecting your assets.
If you're at risk of garnishment
, using a prepaid debit card can be an effective way to protect your funds. By loading your money onto a prepaid debit card, you can keep it separate from your bank account and out of the reach of creditors. When selecting a prepaid debit card
, make sure to choose one with low fees, useful features, and good customer support. With the right prepaid debit card, you can avoid garnishment and take control of your finances.