 Creditors
can garnish your bank accounts
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 Dear
Bankruptcy Adviser,
If a creditor has a judgment against me, and is
withdrawing garnishments from my bank account, is there a limit that the creditor
can withdraw? Or can the creditor take everything down to $0?
-- Charles
 Dear
Charles,
Here's the lay of the land. When a creditor has a judgment against
you, there are a few standard ways the creditor can collect: liens
filed against the property, wage garnishment and bank levy.
Most
creditors immediately execute a lien against your property (i.e., your home) because
eventually they will get their money. What happens is that the judgment lien
will continue to accrue interest until the property is sold. At that time,
the lien will be paid in full before ownership of the property can change hands.
If a lien is not possible, creditors will attempt
a wage garnishment against your earnings. Technically, a wage garnishment
is a legal procedure through which some portion of a person's earnings
is required to be withheld by an employer for the payment of a debt.
Here's what this means: After state and federal taxes are withdrawn
from your paycheck, what's left is known as your "disposable
earnings." In general, the creditor may then garnish up to
25 percent of these disposable earnings. The creditor doesn't garnish
from your bank account, however; the amount is withheld by your
employer.
The law also sets the maximum amount that may be garnished
in any workweek or pay period, regardless of the number of garnishment
orders received by the employer. For ordinary garnishments (i.e.,
those not for child support or any state or federal tax), the weekly
amount may not exceed 25 percent, no matter how many creditors you
have.
The loophole to a wage garnishment order is if you
quit your job. Creditors believe that individuals will not quit
their jobs simply because of wage garnishment orders, since they
will still be making 75 percent of their paychecks (after taxes
withheld). What's interesting is that while people under wage garnishment
often do want to keep their jobs, and while employers are not allowed
to terminate an employee because of a wage garnishment order, sometimes
that's exactly what happens. I have seen employers find "another
reason" to terminate an employee, which suspiciously followed
receipt of the wage garnishment order. Why? Employers are people,
too. Some feel that a person with bad credit is a risk in other
ways, and this inclines them to find ways around the law.
Finally, the creditor may know where you bank and
will issue a levying order to your financial institution. This process
varies from state to state, but in general, a creditor can levy
your account down to zero.
Usually a creditor will do a "skip trace"
(which means they search out your location -- residence
or employment) to find out where you live and then call the banks
in that area. At that point, the creditor will obtain and serve
a writ of execution on the bank. While a bank won't give out your
personal information, once the writ has been served, the bank must
withhold funds held at that bank. Your account gets drained to the
limit of the levying order and, after a 21-day holding period, the
creditor gets the money.
Quite often, Charles, a debtor files bankruptcy to
avoid any or all of these events from occurring. Now that the creditor
has your bank account information, you either must contact and negotiate
with the creditor directly -- or live without a bank account.
Justin Harelik is a practicing attorney in Los
Angeles. To ask a question of the Bankruptcy Adviser go to the "Ask
the Experts" page and select "bankruptcy" as
the topic.
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