The Truth of Credit

Sometimes I wish I had ten cents for every time a debtor told me “You cannot get blood from a rock”. Well here is an example of how it can be done.

Bank accounts can be garnished and, when they are, it is almost always a surprise to the debtor. What typically happens is creditors obtain money judgments (usually by default) and then use the judgment to freeze the funds in your bank account. State law and banking rules govern how the bank must handle the garnishment process.

Creditors always notify the bank first and then notify the debtor. This way your funds are frozen before you can take any action such as withdrawing all your funds. Notifying the bank first is perfectly legal. You typically receive the notice (including your rights) a day or two after your funds have been frozen. Know your Rights.

In most states, the garnishment can only freeze funds already in your account at the time of service on the financial institution. During the time the garnishment is in effect, the financial institution cannot honor checks or other orders for the payment of money drawn against your account. This means any outstanding checks will more than likely bounce or be returned for NSF. The exception to this rule is if your account has a higher balance than the amount of the garnishment. In this case, the bank can honor checks up to the amount that will reduce your funds below the amount of the garnishment. When the amount being garnished is paid, the freeze on your account must be terminated.

The TRUTH is that most creditors won’t take matters this far but some will. I would strongly recommend not rolling the dice here. Most accounts that are in a “Pre-legal” status need to be addressed immediately. If you have ever had your wages garnished you understated that it is a depressing process and very hard to reverse once it is locked in.

If you enjoyed this post, make sure you subscribe to my RSS feed!