How Do Creditors Find Your Bank Accounts?
JA
Summary:
Creditors and debt collectors can find your bank accounts through your previous payment records, credit applications, skip tracers, and information subpoenas. Most of the time, the creditor must obtain a court order before garnishing your bank accounts, but this isn’t the case for some government entities. To avoid having your accounts or wages garnished, keep up with your debt payments, respond to any lawsuit you receive, and consider credit counseling.
No one ever plans to fall behind on debt payments, but sometimes layoffs, medical expenses, or other unforeseen setbacks can make it impossible to keep up with your monthly obligations. Unfortunately, apart from seeing a drop in your credit score, failing to make debt payments might also result in serious consequences — such as bank account garnishment. If you have unpaid debts, a creditor can obtain a court order that allows them to garnish your bank account and take money out to satisfy the outstanding debt.
So how much money can a debt collector take from you, and how do they find your bank account information? In this article, we’ll explain how creditors can access your bank account when your debt becomes delinquent.
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How does a creditor get access to your bank account?
When a creditor obtains a court judgment, they can instruct your bank to withdraw money from your account and apply it to your outstanding debt. This legal process is called “garnishment,” and it’s usually reserved for cases where you’ve failed to respond to multiple attempts to collect the debt. If the creditor sues you and wins the judgment, they could obtain a court order against you to recover the funds you owe them.
There are three main ways creditors can get your information.
- First, the creditor can easily obtain information about your bank and account number through your past payment records.
- Another way that creditors can get your information is through skip tracers. Skip tracers specialize in tracking down delinquent debtors, and they can find your financial records from various sources. This includes credit card companies, retailers, and even your purchase histories.
- Creditors can also get your information through information subpoenas. This is a court document that asks for your bank information, current income sources, and any assets you have.
- Finally, creditors can get your information directly when you fill out a credit application or provide your social security number.
Certain debts owed to the government — such as sanctions and fines — can even result in garnishment without a court order. Apart from garnishing your bank accounts, creditors can also garnish your wages. They can do so by making your employer take out a portion of your wages from your paycheck to pay back your debt.
IMPORTANT! Keep in mind that a creditor can garnish various accounts to reclaim owed funds. That includes money in your checking account, savings account, CD account, and even money market account.
How much can creditors take from your bank account?
The amount of money creditors can take from your bank account will depend on which state you live in. Some states, like Delaware, completely ban the garnishment of bank accounts. On the other hand, you can apply for a wildcard exemption to protect your assets in some other states.
This exemption provides you a dollar amount that you can then apply to a nonexempt asset. And in some states, this asset may include a bank account. Here is what the exemption amount looks like in different states according to the National Consumer Law Center:
- Florida ($5,000)
- South Dakota ($7,000)
- North Carolina ($5,000)
- New Mexico ($5,500)
- Mississippi ($10,000)
- Maryland ($6,000)
- Illinois ($4,000)
- Tennessee ($10,000)
What does this mean for you?
When creditors come to settle their debts, they may seize some of your property in order to repay that debt. However, certain assets are exempt from this seizure. Common exemptions include clothing, essential furniture, your car, and your house (assuming the debts owed are not on your car or house).
With that in mind, let’s revisit the wildcard exemption. Maybe you have a boat worth $2,000 in Mississippi. Since Mississippi has a wildcard exemption of $10,000, you can apply $2,000 of that to your boat and the remaining $8,000 to your bank account. This means a creditor cannot garnish $8,000 in your bank account.
Pro Tip
Make sure you check the wildcard exemption laws in your state, as certain states limit how much money you can put towards your bank account. In Washington, for example, only $2,000 of the state’s $3,000 wildcard exemption can apply to a bank account.
Types of funds creditors can’t touch
As we mentioned above, debt collectors can’t garnish any funds or property they choose. The below accounts are generally exempt from debt collector garnishment.
- A bank account for government purposes. Federal law prohibits creditors from touching the Veterans Affairs benefits and Social Security benefits deposited directly into a bank account. However, this protection only applies to two months’ worth of funds, and any amount beyond that can be subject to garnishment.
- An offshore bank account and trust. Since offshore asset protection trusts (APT) are outside U.S. jurisdiction, if a debt collector tries to garnish your account, they’ll have a harder time doing so. Though offshore bank accounts and trusts are typically costlier than their domestic counterparts, the extra protection may be worth it for peace of mind.
- Wages earned in certain states. Some states offer strong protection against wage garnishment. If you live in North Carolina, Pennsylvania, South Carolina, or Texas, all your wages are fully protected from debt collectors. This means creditors can’t ask your employer to subtract wages from your paycheck to pay off your outstanding debt. However, creditors can still garnish your bank account. So once your wages are deposited into your bank account, creditors might be able to tap into your funds.
What can creditors not take from your account?
According to the Consumer Financial Protection Bureau (CFPB), creditors and debt collectors are not allowed to garnish your federal benefits such as:
- Social Security benefits
- Veteran’s benefits
- Supplemental security income benefits
- Civil service and federal retirement and disability benefits
- Military annuities and survivor benefits
- Federal student aid
- Financial assistance from the Federal Emergency Management Agency
- Railroad retirement benefits
However, these federal benefits could be taken away from you to pay delinquent taxes, alimony, child support, or student loans.
How to protect your bank accounts from creditors?
A bank account garnishment judgment can leave a stain on your credit report for up to seven years and seriously damage your credit score. So what can you do to avoid having your bank account garnished?
- Keep up with your debt payments. This may seem like an obvious one, but it’s important nonetheless. If you’re current on your debt payments, then there’s no reason for creditors to garnish bank accounts. If you’re not good at remembering to make payments, set up automatic payments so you don’t have to worry about falling behind.
- Respond to lawsuits. Make sure to always respond to any lawsuits that come your way. Ignoring a lawsuit from a creditor will only make things worse. If you’re not sure how to respond, consult with a legal professional.
- Consider credit counseling. If you’re struggling to keep up with your debt payments, consider credit counseling from a nonprofit organization like the National Foundation for Credit Counseling (NFCC). A credit counselor can help you create a budget and set up a payment plan with your creditor. You can also reach out to one of the credit counselors below to get a better idea on how to pay down your debts.
What to do if a debt collector sues you?
According to the Federal Trade Commission, if a debt collector sues you, it’s important to respond right away — either by sending a written response or showing up in court. If you’re unsure how to do so yourself, ask an attorney for help.
Then, make sure to look over the records regarding the debt and carefully read through the lawsuit. If you disagree with the information in the lawsuit, you can contest it by providing evidence of your claims. As long as you challenge the lawsuit within 30 days of the first contact, the debt collector is required to verify the debt.
Pro Tip
Remember, never ignore legal notices! If you refuse to go to court, the debt collector can win by default simply because you didn’t show up. When the court rules against you, the debt collector can proceed with bank account garnishments and access your account information to collect past-due debt payments.
FAQs
Can creditors see my bank statements?
If a creditor wants to access your bank account and check your bank statements, the creditor will need permission from the court. However, certain federal agencies, including the IRS, may be able to access your bank account without a court order.
What is a judgment creditor?
A judgment creditor is a person or entity (such as a financial institution) that has won a lawsuit and has been awarded a monetary judgment by the court. The judgment creditor has the right to collect on that judgment by taking certain legal actions, such as garnishing wages or levying bank accounts. In some cases, the judgment creditor may also be able to place a lien on the debtor’s property.
What is the 11-word phrase to stop debt collectors?
If you’re being hounded by creditors or a debt collection agency, you can say this 11-word phrase to make them stop: “Please cease and desist all calls and contact with me, immediately.”
When you say this phrase to a debt collector, they must stop all communication with you. Remember, if you said these 11 words over the phone, make sure to follow up with a letter or an email, so you have a record of what you said.
Key Takeaways
- When a creditor sues you and wins the judgment, they can obtain a court order to garnish your bank account and satisfy the outstanding debt.
- Creditors can find your bank account information from your past payment records, credit applications, information subpoenas, or with the help of skip tracers.
- Creditors are not allowed to garnish your federal benefits, such as social security benefits and federal student aid.
- To protect your bank account from creditors, keep up with your debt payments, respond to lawsuits in a timely manner, and consider credit counseling if you need assistance with repaying debt.
Proactively manage your debts
No one likes the idea of their bank account or wages being garnished by creditors. But if you’re not careful, it could happen to you.
To prevent creditors from garnishing your bank account or your wages, take steps to ensure it doesn’t happen in the first place. Keep up with your debt payments and manage your finances responsibly. And if you genuinely have trouble repaying your debt, consider working out a payment plan with your creditor or hiring a debt relief company to help you settle your debt.
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