When creditors don't receive their money in a timely fashion, they might employ more aggressive tactics to collect their debt. These tactics can include garnishing, or levying, a bank account. If the debtor is married or has a friend or family member listed on the account, the innocent party may still be at risk of losing his funds, depending on state law and the source of the money in the account.
Community Property States
Community property states and common law property states deal with marital debts differently. Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin are community property states, where all income and debts earned and incurred during the marriage are treated as equally shared by the spouses. Banks in these states will generally view that both spouses share liability in their debts, whether or not one of the spouses signed onto the debt. Funds in a joint account are subject to garnishment, regardless of which party deposited them. For example, if John and Sue have a joint checking account and Sue is the only one employed and making deposits, John's creditors can still garnish the account and take away the money Sue has deposited.
Common Law Property States
Garnishment is different for different states that use common law property distribution laws. Some of these states will not allow a creditor to garnish a joint account if one of the spouses was not individually liable on the account and the debt was not incurred for the benefit of that spouse and the family. However, other common law property states limit a creditor to only half of the funds in the account. Minnesota allows a creditor to garnish the account, but it can only keep funds that belonged to the judgment debtor; in that state, the debtor must show that part of the funds belonged to the other account holder.
Exemptions to Garnishment
The bank may not be able to take all of the money out of the account. For example, federal law bars the garnishment of Social Security payments, Supplemental Security Income, veterans benefits, federal program retirement benefits and railroad retirement benefits. State laws might also restrict the garnishment of some types of deposits, such as income from work or retirement account funds. For example, Georgia restricts the garnishment of retirement funds and a percentage of a person's paycheck. However, if the creditor is the Internal Revenue Service or a child support agency, these exemptions do not apply.
Procedures for Garnishment
If the garnishment affects exempted funds, it is the customer's responsibility to inform the bank. However, a 2011 law requires banks to review accounts for the last two months in an account subject to garnishment to protect any federal benefit deposits that were posted. If the account holder lives in a state that protects his portion of the funds in the account, he must sign forms provided by the bank and return them on time. State law may permit a person to file for an exemption with the court before the garnishment takes effect.
- HG.org: Defending Bank Garnishment Litigation Filed Against Banks and Other Financial Institutions
- Nolo: Bank Levies on Joint Accounts (Spouse)
- Friedman Iverson: What You Need to Know About Garnishment of Joint Accounts in Minnesota
- Bankrate: 3 Questions on Bank Account Levies Answered
- Bankrate: Double Trouble -- Joint Account Garnished
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