How to Open a Bank Account That No Creditor Can Touch

Most debtors keep significant amounts of money in bank accounts. Therefore, one of the first things a creditor will do after getting a judgment is garnish the debtor’s bank account.

Bank accounts contain liquid assets that can immediately pay the creditor and their attorney. Every debtor needs bank account money to pay living expenses and attorney fees, so attacking the debtor’s bank accounts puts financial stress on the debtor. And obtaining a writ of garnishment against a bank account is a relatively simple legal procedure.

What Is a Bank Account Garnishment?

A bank account garnishment is a legal tool used to collect on a money judgment. Bank account garnishments apply to all types of accounts, including checking accounts, savings accounts, CDs, money market accounts, and safe deposit boxes.

If the money in the account is not exempt, then the creditor will be able to obtain the money in the account to help pay off the money judgment.

Bank account garnishments are the most popular collection method. They are relatively quick and inexpensive to do, and they can be rewarding to the creditor if there is a lot of money in the account.

When your account is levied, you can still open a new account. A bank account garnishment against one bank does not prevent you from opening other bank accounts, whether at the same bank or any other bank. You can move any automatic bill payments or deposits to the new account.

Opening a Bank Account That No Creditor Can Touch

There are four ways to open a bank account that no creditor can touch: (1) use an exempt bank account, (2) establish a bank account in a state that prohibits garnishments, (3) open an offshore bank account, or (4) maintain a wage or government benefits account.

1. Open an Exempt Bank Account

An “exempt bank account” is an account that contains funds that a creditor cannot use to satisfy a money judgment. State laws allow debtors to shield certain types of bank accounts, including entireties accounts, wage accounts, retirement proceeds accounts, and homestead accounts, from collection by judgment creditors. The exemption can apply to the entire account or certain funds inside the account.

For example, in Florida, bank accounts owned jointly by married couples as tenants by entireties are exempt from garnishment by a judgment creditor of either spouse. The accounts are not exempt from creditors of both spouses, however. Tenants by entireties ownership of bank accounts is governed by 655.79 of the Florida Statutes.

A debtor does not have to reside in Florida to maintain an exempt entireties account at a Florida bank. Florida law exempts entireties accounts located in the state regardless of where the owner resides. Beware that there are several technical requirements to open an exempt entireties account at those banks that do not offer an entireties option on the account application. It’s best to find a state-chartered Florida bank that expressly provides tenants by entireties accounts and where the entireties designation is expressed on monthly statements.

If a creditor serves a writ of garnishment on a bank where the debtor maintains an exempt tenants by entireties account, the bank will still freeze the account. The debtor will have to hire an attorney to claim the exemption in a court proceeding and have the court order the garnishment dissolved. A bank may not be held liable for retaining money in a garnished account during the time the debtor is attempting to dissolve a garnishment writ through court proceedings.

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2. Open a Bank Account in a State That Prohibits Garnishments

A judgment debtor can best protect a bank account by using a bank in a state that prohibits bank account garnishment. In that case, the debtor’s money cannot be tied up by a garnishment writ while the debtor litigates exemptions. If a state’s laws do not permit creditor garnishment of bank accounts, the debtor can maintain protected cash to pay living expenses and legal bills. Ideally, the debtor does not have to reside in the state with protected bank garnishment laws. That way, a Florida debtor could open an account in the protected bank. Even fewer states completely prohibit creditor garnishments of bank accounts no matter the amount of money in the account. However, most (but not all) banks in these states only accept customers that live in the state where the bank is located. It can be challenging to find a bank located exclusively in a state that prohibits bank account garnishments that nevertheless accepts Florida customers.

3. Open an Offshore Bank Account

An offshore bank account is a bank account located outside the United States. While not technically an exempt account, in practice it is very difficult for a judgment creditor to reach funds sitting in an offshore bank account. For example, in Florida, a court must have jurisdiction over the offshore bank and over the funds themselves to issue a garnishment directed towards the offshore bank.

4. Open a Wage Account or Government Benefit Account

Some states, such as Florida, have statutes that exempt the garnishment of wages of the head of the family. In addition, most federal benefits, such as social security or disability payments, are exempt from garnishment by federal laws. Protection of these funds remains after they are deposited into the debtor’s bank account, but only if the judgment debtor can trace the funds to their exempt source. Tracing is easiest when a bank account contains only funds from the exempt source. Judgment debtors should not mix exempt and non-exempt funds in the same bank account.

Example Use of a Protected Bank Account

James is an unmarried Florida resident with an old judgment for an unpaid credit card bill. The creditor has not tried to collect on its judgment for many years, so James has built up a substantial balance in his bank account. The judgment creditor has scheduled a deposition in aid of execution, so James is worried that the creditor will find out where he has bank accounts. Because he’s not married, he cannot take advantage of tenants by entireties law to protect the bank account. There are no other exemptions to the money in the account. In this situation, James may be able to protect the funds by depositing them at a bank immune from garnishment under state law. The creditor’s collection tool would normally be a garnishment. But if the funds are at a bank where state law prohibits garnishment, the money effectively would be protected from the judgment creditor.

Can a Bank Account Be Garnished Without Notice?

Yes, a bank account can be garnished without notice. A judgment creditor does not need to tell you in advance that it intends to garnish your bank account. If a creditor were required to give a debtor advanced notice of a bank account garnishment, then the debtor would have the opportunity to empty the account in advance of the garnishment. Under Florida law, a creditor must notify you about a bank account garnishment only after first serving the garnishment on the bank. Once the garnishment documents are served on the bank, the bank will freeze the account. The garnishment notice should explain your rights in the garnishment proceeding and the process for claiming any exemptions you have.

How Can You Protect a Bank Account from Creditors?

  1. Open an exempt account, such as a joint marital account as tenants by entireties. Tenants by entireties assets are exempt under Florida common law if the debt is only owed by one spouse.
  2. Maintain a bank account in a state that prohibits a judgment creditor from garnishing the bank.
  3. Open an offshore bank account to make garnishment complicated and expensive.
  4. Maintain an account with only exempt funds, such as social security or pension plan distributions. These funds are exempt per Florida or federal statutes.

States That Prohibit Bank Garnishment

Bank account garnishments are governed by state law. Some states have laws that limit a creditor’s ability to garnish a bank account. Here are the states that prohibit bank account garnishments when the account holds only a small amount of money:

Depending on the type of judgment, there are other states where banks are totally immune from bank account garnishment. However, for most people, there are only a few banks in the U.S. that cannot be garnished to satisfy a monetary judgment.

Finally, some states have laws that prohibit wage garnishments for consumer debts. These states include:

Bank Account Levy

A bank account levy is a legal tool in some states where a judgment creditor seizes a bank account to collect on its judgment. In these states, the law differentiates between a garnishment (used for wages) and a bank account levy (used for money the judgment debtor has in a bank account).

To obtain a bank account levy, a creditor first must petition or motion a court to freeze the bank account. The creditor serves the order to levy at the bank. The bank will comply with the order and allow the creditor to fully withdraw all funds from the account to satisfy the judgment.

In Florida, bank account levies are called garnishments. Florida law allows the temporary freezing of the account, allowing the judgment debtor to claim any exemptions before the funds ultimately go to the judgment creditor.

Under Federal collection law, government agencies can levy bank accounts to satisfy government debt such as sanctions, fines, or restitution orders.

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