Creditors can go after your bank accounts via wage garnishment or a bank levy. Hopefully, it never comes to that, but there are steps you can take to protect your account from creditors. You will need to consider where the account is domiciled (U.S. or offshore), who owns the account, and what the account is used for.
If you are tired of getting numerous calls from creditors, your first instinct might be to pack your bags, pull all the cash out of your bank, and buy a one-way ticket to another country. However, if that country’s economy doesn’t have a ton of opportunities, you might still be stuck in the U.S. And under American law, creditors and debt collectors are able to garnish your wages or even freeze your account in certain circumstances. To avoid this scenario, here are some steps you can take to open a bank account that no creditor can touch.
How creditors can access your bank account
Creditors or judgment creditors (as they need to have a judgment in order to access your bank account), whether they be private or public, can access your bank account in two ways: through wage garnishment or a bank levy.
Wage garnishment happens when a creditor obtains a court order to go after part of your earnings. A court will sign a “garnishment order” or a “writ of garnishment.” Essentially the court orders that a monthly portion of your earnings are to be taken directly from your bank account. This is important to note because, technically, a creditor can garnish your wages only if you are employed and receiving income. If you have money in your bank account but are unemployed, technically, you are protected from wage garnishment. Wage garnishments are typically capped at 25% of your disposable income.
Bank account levy
A bank levy is more serious than a wage garnishment and involves the government freezing your bank account. Although creditors can obtain a bank levy, laws stipulate that a levy has to be for a considerable amount of money and for considerable negligence in terms of your willingness to pay back the debt. So a bank levy is more commonly used for someone who owes a large amount of unpaid taxes than for someone who owes delinquent credit card debt.
Ways to open a bank account that your creditors can’t touch
Here are some of the best ways to protect your money from creditors.
Set up an account that only receives government benefits
Government benefits, such as Social Security or Medicare, are exempt funds, meaning they are exempt from wage garnishment from certain creditors, but not all of them. If you owe taxes and the IRS is the creditor, they are allowed to deduct up to 15% of your wages for unpaid back taxes. Below are some examples of benefits that PRIVATE creditors cannot access.
- Supplemental Security Income benefits
- Disability benefits
- Veterans, military, and military survivors’ benefits
- Federal emergency disaster assistance
- Federal Office of Personnel Management benefits
- Federal student aid
- Railroad retirement benefits
In order to comply with the law, all benefits derived from these sources need to be direct deposits, and the account CANNOT be mingled with other accounts.
Open a bank account in a state where wage garnishment is illegal
There are several states where garnishment is actually illegal. In some cases, a tax levy might be harder to obtain as well, but not illegal. The following states have protections on wage garnishment:
- North Carolina
- South Carolina
Even if you live in one of these protected states, keep in mind that creditors will often look for loopholes, such as the location of the creditor or the location of your employer.
Open a bank account under a company
Depending on the structure of your business, opening a bank account under a company name and not your own could keep you from having your wages garnished or your bank account frozen via bank levy. This is due to the limited liability structure that many companies adopt.
Forming an LLC is the easiest and most direct way to set up a company and protect yourself from wage garnishment. Legally, wages can only be garnished in a sole proprietorship, for example, based on the salary that is transferred to the debtor. As long as you keep your money in that account and don’t transfer it to yourself, you are more or less protected.
Joint bank accounts (in certain states)
Joint bank accounts can also protect you from creditors, but it depends on where the bank is domiciled, whether it’s a separate property state or common law property state, etc.
For example, in separate property states, a joint account cannot be garnished unless it can be proved in court that the debt was taken on collectively by both parties on the account. In community property states, your debts are considered one, regardless of which party incurred them. This is also important to note because if one party takes on debt in community property states, wages can be garnished from the other party’s separate account.
If you’d like to open a new account, compare your options from these financial institutions that offer joint accounts.
Offshore bank accounts
Another option is to open up a foreign account. It’s important to note, however, that any foreign bank account with over $10,000 on an aggregate basis must be declared to the U.S. government. This means that to have it “undeclared,” it needs to sit at $9,999 with no other incoming monies for one full calendar year. You can do this in two ways:
Open a foreign account directly
One option is to open a foreign checking account or savings account. If the balance is under $10,000 on an aggregate basis, then you don’t have to declare it. Furthermore, even if creditors do want to garnish wages or enact a bank levy, it’s extremely hard for them to do outside of U.S. jurisdiction. For instance, a debt collection agency is going to have a difficult time trying to take any British pounds or Hong Kong dollars you hold in your HSBC multicurrency account in Hong Kong.
Open an account under a foreign trust or LLC
Another way to open a bank account in an overseas market is to open one not in your own name but under a foreign trust or LLC business bank account. Setting up these vehicles is difficult and expensive, but it enables you to hide your identity better. However, regardless of whether it’s a personal bank account or an LLC/trust bank account, the $10,000 declaration still holds.
Be aware, however, that although it’s difficult to garnish wages from a foreign bank, that doesn’t mean creditors can’t go after other overseas assets. Claudia Cobreiro, an experienced business attorney, says, “Generally, a court order from the U.S. is not enforceable overseas. Still, it may be possible for a creditor to reach international assets depending on whether said asset is subject to foreign law (for example, if the assets are deposited in a foreign bank that has domestic branches and is subject to local law) or if the foreign jurisdiction authorizes the domestication (local adoption) of the U.S. judgment.”
What type of bank account cannot be garnished?
If you have a joint account in a separate property state, the wages cannot be garnished if only one party owes the debt. Other options include setting up an account in a state with garnishment protections, opening an offshore bank account, or setting up an LLC and keeping the money inside the LLC. It’s important to note that every state has different rules, and therefore it is crucial to make sure that you have a perfect grasp of your state’s rules.
How do you open a bank account no one can touch?
In the above-mentioned ways, you can keep various creditors from your bank account. But even if you opt for foreign accounts, if you owe taxes or are under sanctions, the long reach of the U.S. government is a real thing. The U.S. uses its power as the head of the global financial system to sanction and punish banks that do not abide by its rules and requests.
How to stop creditors from taking money from your bank account?
If your wages are being garnished and you would like that to stop, the best way to go about it is to contact an attorney. An attorney who specializes in debt settlement may be able to help you reduce the amount you owe and stop the garnishment.
- There are steps you can take to set up accounts that will be protected if a debt collector or creditor has an order for garnishment or a bank levy.
- If you open up an offshore account, open an account in a non-garnishment state, or open a joint account in a separate property state, you could protect your wages from garnishments.
- Although you’ll need to declare every offshore bank account with $10,000+ aggregate over a calendar year, it’s extremely difficult for creditors to access these funds.
- Setting up an LLC or an alternate structure is one way ensure that your business funds cannot be garnished.
View Article Sources
- Information About Wage Levies – IRS.gov
- What is a Levy? – IRS.gov
- What Are the Differences Between Creditors and Debtors? – SuperMoney
- How Do Creditors Find Your Bank Accounts? – SuperMoney
- How To Negotiate A Debt Settlement – Pros and Cons – SuperMoney
- Can a Credit Card Company Garnish Your Wages? – SuperMoney
- How to Remove an IRS Levy: The Definitive Guide – SuperMoney
- Opening a Joint Account: The Definitive Guide – SuperMoney