A bank account garnishment, also known as a bank levy, is a legal step creditors can take to collect what you owe, by way of a court judgment. You can only close a bank account with a garnishment order on it if you get notification prior to the bank. Typically, the creditor will notify your bank first, allowing your funds to be frozen before you get the news and can close the account or withdraw the funds.
Creditors' Rights
Creditors have the legal right to find your bank account and seize your funds to enforce a judgment. Often, a creditor will perform a skip trace to find out where you work and live and from there, they call around to the banks in the area. A creditor can legally obtain a bank levy from the court as many times as it takes to collect the entire debt owed. Your account can be completely emptied to the limit of the garnishment order, and the creditor receives the funds after a 21-day holding period.
Exempt Funds
Certain funds in your bank account may be exempt from garnishment. Federal law prohibits the collection of certain monies to allow debtors to retain enough funds to sustain the basic life necessities. Allowable exemptions vary from state to state, but include a specified percentage of your disposable income (after-tax income), support payments (child and alimony), most government benefits (Social Security, public assistance), retirement benefits and unemployment, disability, life insurance or workers' compensation benefits.
Seizure Process
Once your bank receives a garnishment order from a creditor, it must freeze all non-exempt funds in your account, and it cannot use the money to pay checks you have already written or allow you to withdraw cash. At this point, if you try to close a bank account with garnishment orders on it, the bank will probably not allow it, since it is typical for your account to be frozen until the debt is completely paid off, even if your account has already been emptied by the levy. Immediately after you receive notice of the bank account garnishment, you need to contact the creditor and your bank in writing, to clarify amounts of any exempt funds in your account and provide proof the money came from an exempt source.
Joint Accounts
If your bank account is in your name only, the entire account is subject to the garnishment orders and cannot be closed until your debt is paid. If you own the account with your spouse, the entire account is affected by the levy and cannot be closed, but your spouse can object to the garnishment. If, on the other hand, you share a deposit account with a non-spouse friend or roommate, the other person's portion of the funds cannot be garnished. The presumption is made that all holders of the account share joint tenancy, so if you own the account with another person, it is assumed that 50 percent of the funds are yours and those funds will be seized. Some banks allow the seizure of the entire account, leaving it up to the non-debtor account owner to object.