If you are anything like me, you will not want to put your money in a bank account only to lose it to garnishment or bank account levy. That is why it’s important to figure out how to open a bank account that no creditor can touch.
How to Protect your Bank Account from Creditors
People who have a judgment against them frequently want to know how to open a bank account that no creditor can touch. Despite the ruling, the debtors need a bank to preserve their savings and future revenue. They do not, however, wish to deposit money in a bank account just to lose it due to garnishment or a bank account levy.
There are six ways to open a bank account that no creditor can touch:
- Using an exempt bank account
- State laws that prohibit bank account garnishments
- Opening an offshore bank account, and
- Solely keeping wage/household funds in your account
- Account for government benefits
- Business accounts
Exempt bank accounts, for starters, include accounts owed as tenants by entirety (if the debt is only owed by one spouse). Second, depending on the source of the funds in the account, certain jurisdictions have regulations prohibiting a judgment creditor from garnishing all banks within the state.
Third, most civil creditors will find it difficult and expensive to collect from an offshore bank account. Fourth, an account containing only exempt funds, such as social security deposits, would be protected. Fifth, government benefits account credited directly are protected from garnishment. Sixth, Registered business accounts will not be garnished.
How to open a bank account that no creditor can touch is not much of a tricky process but you need to pay attention to detail.
How To Open a Bank Account That No Creditor Can Touch
Like I stated above there are four ways how to open a bank account that no creditor can touch.
1. Open an Exempt Bank Account
According to state rules, some bank accounts may be exempt from garnishment. For example, bank accounts owned jointly by married couples as tenants by entireties are protected from garnishment by a judgment creditor of either spouse in Florida and some other states. However, both spouses’ creditors have access to the funds. The Florida Statutes 655.79 governs Tenants by entireties ownership of bank accounts.
To keep exempt entireties account at a Florida bank, a debtor does not have to live in Florida. Regardless of where the owner resides, Florida law exempts entireties accounts. Many banks who do not give an entireties option on the account application have many legal and technical prerequisites to open an exempt entireties account. Finding a local Florida bank that supplies tenants with entireties accounts and expresses the entireties classification on the signature card and monthly statements is the best option.
Understand that if a creditor delivers a writ of garnishment on a bank, the bank will still freeze the account if the debtor has an exempt tenant by entireties account. To claim the exemption in a court process and have the garnishment dissolved, the debtor will need to employ an attorney. A bank cannot be held accountable for keeping money in a garnished account while the debtor is attempting to have the garnishment order lifted through judicial action.
This is one of the easy ways how to open a bank account that no creditor can touch.
2. Open a Bank Account in a State Whose Laws Prohibit Garnishments
This is pretty common if you’re looking for how to open a bank account that no creditor can touch. A judgment debtor’s bank account is best protected by choosing a bank in a state where bank garnishment is prohibited. In that instance, a garnishment writ cannot encumber the debtor’s funds while the debtor pursues exemptions.
If a state’s rules prohibit creditors from garnishing bank accounts, the debtor can always keep protected funds on hand to cover living expenses and legal bills. The ideal situation is for the debtor to not have to live in a state where bank garnishment is legal. In such a circumstance, any debtor, regardless of residency or where the judgment was entered, can open an account in the protected bank.
A minor amount of money in a bank account is protected against judgment creditors in some states, including South Carolina, Maryland, North Dakota, New York, and New Hampshire. Creditor garnishments of bank accounts are illegal in a few states, regardless of the amount of money in the account. Most (but not all) banks in these states, on the other hand, only accept customers who live in the state in which the bank is located.
3. Open an Offshore Bank Account
We can’t really do justice to the topic of how to open a bank account that no creditor can touch without mentioning an off-shore account.
A bank account located outside of the United States is known as an offshore bank account. While not strictly an exempt account, a judgment creditor’s ability to access funds held in an offshore bank account is extremely difficult.
In Florida, for example, a court must have jurisdiction over both the offshore bank and the cash in order to execute a garnishment against the offshore bank. Furthermore, case law suggests that a state court in Florida cannot force a judgment debtor to bring assets located outside of the state into the state (a “turnover” order).
4. Open a Wage/Household Account
Some states, such as Florida, exempt the head of a family from wage garnishment. Furthermore, most federal benefits, such as social security and disability payments, are not subject to garnishment.
When the money is deposited into a bank account, they are still protected, but only if the judgment debtor can trace the funds back to their exempt source. When a bank account solely contains funds from the exempt source, tracing is made easier. To put it another way, don’t keep exempt and non-exempt funds in the same account. That is one important bit if you’re learning how to open a bank account that no creditor can touch.
5. Open a Bank Account Sorely for Government Benefits
People who receive funds that are not subject to garnishment can use this option. Creditors are prohibited by law from accessing these cash within a particular lookback period, which is often two months.
Some examples of exempt funds are:
- Social Security Benefits
- Unemployment Benefits
- Retirement Benefits
- Child Support / Spousal Payments
- Veterans’ Benefits
- Life Insurance Benefits
- Disability Benefits
These funds must be directly transferred into your bank account in order to be considered exempt. If you withdraw the money and transfer them to another bank account or deposit them yourself, they are no longer exempt, and you will have to establish that the funds came from exempt sources.
Even while the bank is required by law to keep these exempt monies available to you even if there is a bank levy, you do not want to risk a debt collector taking your Social Security payments or your bank freezing your child support payments. To avoid these mistakes, it’s better to open a separate bank account for exempt funds that will only be deposited directly.
6. Open a Registered Business Bank Account
An LLC business bank account will help you and it’s almost perfect if you want to learn how to open a bank account that no creditor can touch.
If you own or plan to own a business, this option is accessible to you. Because they believe it is more practical to have a single bank account, most solo entrepreneurs utilize their personal bank accounts for company needs as well.
If you have cash in your personal bank account that is tied to your business, you don’t want them taxed or frozen because of your personal debts.
The benefit of establishing a business bank account for a Limited Liability Company (LLC) is that the courts will treat the company as a separate entity from the individual owners. This means that creditors will not be allowed to garnish the LLC bank account if the debt is personal in character.
However, you must be careful to keep your personal and business finances separate, as commingling cash may result in you losing the LLC’s limited liability protection. Creditors may be able to ask the court to confiscate funds from your business bank account if this happens.
Consider forming a limited liability company if you are just starting a new firm, no matter how tiny. Fees for state filings range from $40 to $500. Contact a bank to see what the requirements are for opening an LLC business bank account once your LLC is formed.
Alternative To Opening A Bank Account Creditors Can’t Touch
It is not always simple to open a bank account that a creditor cannot access. Instead of trying to figure out how to open a bank account that no creditor can touch, you may also have some kind of alternative to that.
Debt collectors can harass you indefinitely until you declare bankruptcy and get your debts officially discharged. However, opening a new bank account isn’t the only way to keep track of your finances.
If your bank account has already been levied, you certainly do not want to put further money into it. Because creating a new account does not guarantee that you will not be taxed again, it is far better to keep any money you save or your income out of a bank account.
You can always use cash, but if you don’t want to carry cash about with you or keep cash in your residence, you can keep your money and pay for your costs with a prepaid card. You may now top-up reloadable prepaid cards, and some cards even allow direct deposit of paychecks.
While creditors can track prepaid cards, it’s considerably more difficult to keep track of these cards, particularly if you’re using a disposable prepaid gift card.
How to Protect Your Bank Account From Creditors
Since we are discussing how to open a bank account that no creditor can touch, you should also be interested in learning how to protect your bank account from creditors.
You must avoid getting sued or having a default judgment against you in order to safeguard your bank account from a bank levy. Do not ignore a summons for a debt collection lawsuit if you receive one. You have the option of responding to the summons and contesting it in court, giving you more negotiating leverage to settle the amount. Ignoring it will only improve the creditors’ chances of winning the lawsuit and give them the legal authority to seize your bank account.
Frequently Asked Questions
Is It Illegal To Move Money Out Of My Bank Account To Avoid Creditors From Taking It?
It is possible to be charged with fraud if you withdraw a substantial sum of money from your bank account just to avoid creditors collecting your money. The purposeful transfer or sale of your assets to avoid paying creditors is referred to as Fraudulent Conveyance. You can be found guilty of fraudulent conveyance in a variety of ways.
Here are a few instances of scenarios that could be considered deceptive:
- To avoid paying a judgment, you transferred all or a significant portion of your money to another individual, such as your spouse, family member, or business partner.
- Shortly before filing for bankruptcy, you transferred a considerable sum of money to an offshore account.
- You sold your assets for less than their fair market value, such as selling a brand new $30,000 car to your sibling for $3,000 and continuing to use it after the ostensible sale.
You might be surprised to learn that the look-back period for fraudulent conveyance is normally one year, so if you plan to hide money purposefully while knowing there is a possible or present demand from a creditor, you may be breaking the law.
When compared to withdrawing a significant quantity in one go, withdrawing modest sums overtime to pay your bills or sustain your living needs would likely not be considered fraudulent.
If you sell your car or property to a third-party who is not related to you for an acceptable market pricing, this should not be considered fraudulent as long as the transaction was fair. For a transfer of assets to be ruled fraudulent, creditors must show that it was done on purpose to evade payment.
Can I Open A New Account if my Old Account is Levied?
Yes. Opening a new bank account should not be difficult as long as you meet the requirements of the bank where you wish to open the account. However, just because it’s a new bank account doesn’t mean creditors won’t identify it, demand that you provide your new bank details, and levy it again.
Can I Hide My New Bank Account From Creditors?
The majority of people who inquire “How can I hide my bank account from creditors?” and also about “how to open a bank account that no creditor can touch” have already had a bank levy or are currently facing a debt collection case.
If your creditors win a court order requiring you to declare your bank accounts and financial details under oath, the reality is that you won’t be able to hide your bank account from them. Yes, under penalty of perjury! This means that you must provide this information truthfully, as lying constitutes perjury.
However, keep in mind that the judgment creditor must win the litigation in order to have access to your bank account.
What type of bank accounts cannot be garnished?
In the United States, only a few bank accounts are immune to garnishment. A civil judgment creditor in almost every state in the United States can garnish a judgment debtor’s bank account. These states’ laws apply to any sort of bank, whether physical or virtual. A bank that cannot be garnished would have to be based entirely in a state where bank account garnishments are prohibited. Otherwise, a garnishment could be served in an unprotected state at a bank branch.
Can a creditor garnish your bank account without notice?
Yes, a creditor can garnish a judgment debtor’s bank account without notice in most states. If a creditor was compelled to notify a debtor in advance of a judgment creditor garnishing an account, the debtor would have the option to empty the account before the garnishment. Garnishments with notice aren’t a good way to collect money.
How do creditors find your bank account?
Using post-judgment discovery, or discovery in aid of execution, judgment creditors can learn where a debtor has bank accounts. Post-judgment discovery refers to creditor collection tools that allow a creditor to learn where a debtor’s assets are located and if they can be used to satisfy a judgment. Inspection of the debtor’s tax returns, bank statements, financial records, and the debtor’s oath evidence about his assets are among these tools. There are additional services that lookup a debtor’s banking history in national databases.
Can an LLC bank account be garnished?
If the LLC is sued, the bank account of the LLC can be garnished. However, if a creditor obtains a judgment against the LLC owner, the creditor cannot garnish the owner’s LLC’s bank account. A creditor can get a charge lien against the LLC, which prevents the LLC from distributing funds from its account to a debtor member.
Can a creditor take all the money from your bank account?
In most cases, a creditor can seize all of a debtor’s money in his or her bank account, up to the amount of the judgment, if the money is not otherwise exempt. Money in a garnished bank account deposited by a non-debtor who is a co-owner of a joint bank account, on the other hand, maybe removed from the garnishment freeze.
To assert ownership of his money in the shared bank account, the non-debtor must move to court. Consider the case of a judgment debtor who shares ownership of a bank account with an elderly parent. In that situation, despite the fact that his name appears on the account title, the judgment debtor may be able to avoid the garnishment by claiming that the monies do not belong to him.
Can a debt collector garnish a joint bank account?
A debt collector can generally seize the debtor’s share of a shared bank account’s interest. Even though the joint owner is not accountable for the judgment, the creditor has this power.
Furthermore, if the money in the account comes completely from the non-debtor joint owner, the debtor whose name appears in the account title may be able to show that they have only bare legal ownership to the money and no equitable rights that can be garnished.
As previously noted, the laws of Florida and a few other states exclude joint accounts owned by married people from garnishment directed at either spouse individually.
Can a savings account be garnished?
A savings account can, in fact, be garnished. Checking accounts, savings accounts, money market accounts, internet savings accounts, and CDs are all subject to a bank account garnishment. It can be applied to any type of bank account.
How often can a creditor levy a bank account?
During the term of a judgment, a creditor can regularly levy or garnish a bank. While a creditor cannot harass a judgment debtor, repeated bank account levies or garnishments do not constitute harassment, especially if the money in the bank account is not typically exempt.
Understanding the legal mechanisms a creditor will likely use to freeze a debtor’s bank account and remove the money in the account is essential to protecting a bank account from a creditor levy.
How long can your bank account be frozen?
A garnishment freezes a bank account until the garnishment process is completed, which can take anywhere from one to four months. There are a variety of reasons why a debtor’s bank account may be protected from garnishment, including accounts containing retirement savings, social security, or entireties accounts in the case of a married debtor.
Money from an exempt asset that is put in the debtor’s bank accounts retains its exemption in most states. In court, the debtor must assert and show his or her exemptions. The legal process usually takes at least a month, but it could take two months or longer if the creditor challenges the exemption claim.
How does a levy on a bank account work?
A judgment creditor first obtains a writ of garnishment based on the amount of the judgment in a bank account levy. A garnishment writ is issued against a certain bank. The creditor then serves the bank with a garnishment writ. With limited exceptions, a bank that has been served with a writ of garnishment must freeze all accounts belonging to the judgment debtor, including joint accounts.
When a creditor garnishes a debtor’s account in Florida, the creditor must follow specific processes. One of these procedures entails mailing a copy of the garnishment papers to the debtor, along with a Claim of Exemption form. If the debtor submits an exemption claim, he or she may be entitled to a hearing on the claim and the garnishment may be lifted.
How long does it take to garnish a bank account?
Typically, it takes 1-2 weeks. The court will normally issue a writ of garnishment within a few days after a judgment creditor files an application for one. Some courts/judges are more time-consuming than others. All a creditor has to do now is serve the bank garnishment documents, which takes only a few minutes.
Can debt collectors see your bank account balance?
Using post-judgment discovery, a debt collector can access your bank account balance. A judgment creditor has a variety of techniques at his disposal to determine the exact type and value of your assets. While a creditor cannot look up your bank account balance at any time, he or she can serve the bank with a writ of garnishment without incurring significant costs.
In most cases, the bank must freeze the account and respond with the precise balance of any bank account maintained for the judgment debtor.
A judgment creditor can also subpoena a bank for bank statements or other data that would reveal the account’s normal amount.
This has been how to open a bank account that no creditor can touch. It is not always easy but it is very possible to protect your account or open an account that no creditor can touch.
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