Prepaid debit cards pose one of the biggest money laundering threats in the U.S. because they are notoriously hard to seize. A creditor could seize funds on a prepaid debit card, but this rarely happens because prepaid cards are far harder to track than a traditional bank account. The risk of seizure of a prepaid debit card depends in large part on the information you give up to get it.
A prepaid debit can be seized, according to Bills.com. A creditor, for instance, can file a lawsuit over a bad debt and receive a garnishment against your bank accounts. If the creditor knows about the existence of a prepaid debit card, he can garnish it too. The U.S. government can seize prepaid cards in connection with some crimes, such as the illicit drug trade.
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Seizing or garnishing funds on a prepaid debit card can be nearly impossible on some accounts. Prepaid debit cards often do not require the account holder to provide a Social Security number. Even then, only the IRS can search for bank accounts by SSN, so a private creditor is unlikely to ever locate a prepaid card.
Prepaid debit cards usually have less consumer protection than either bank debit or credit cards. Unlike credit and debit cards, prepaid accounts are not covered by the Electronic Funds Transfer Act or Fair Credit Billing Act. Thus, you could lose all funds on your card in case of theft. Some prepaid card issuers may offer protection similar to that of a debit card, but this is up to the issuer's discretion.
You may be required to the disclose funds in a prepaid account if summoned by a court. Revealing a prepaid account in a "citation to discover assets" does not always means you lose the funds in the account. Some states allow a wildcard exemption so debtors can keep some money after the creditor receives a judgment. If your funds are exempt, write a letter to the prepaid card issuer notifying it of this exemption.