Legal Insights

Can a Joint Account Be Garnished?

Bankruptcy Series

When money is owed to a creditor, it may go after any funds or assets that it can get its hands on. In some situations, creditors may prefer to garnish a bank account rather than go after an employee’s wages. In many situations, the creditor may be able to access funds in a joint account.

Requirement of a Judgment

Before a creditor can have an account frozen or levied, it must first receive a judgment. Prior to receiving such a judgment, the creditor has the legal responsibility to notify the debtor of a lawsuit filed against him or her. If the defendant ignores the complaint, the creditor can receive a default judgment.

The creditor must provide legal notice to the debtor to inform him or her that the creditor has a judgment against him or her. Once this has occurred, the debtor should be on alert that collection efforts may commence immediately or within a specified time after the judgment in accordance with state law.

Writ of Garnishment

Armed with the judgment, a creditor can file a writ of garnishment. Some creditors may go after wages while others may pursue a garnishment of a bank account. The writ is sent to third parties who have the defendant’s assets in their possession, such as an employer for wage garnishments or a financial institution.

This writ is sent to the bank. The bank immediately freezes the funds in the account upon notification of the writ of garnishment.

Ownership of All Funds

State law varies on whether a bank can garnish a joint account and in what manner. However, many states consider who actually owns the account. With a joint account, the presumption is that both account owners own all of the funds. They both usually have the power to withdraw the entire balance per their deposit agreement with the bank. Therefore, the presumption is often that the debtor owns all of the funds in the account.

If the joint account owner is not legally responsible for the debt, state law often provides a mechanism for him or her to assert ownership rights of a portion of the account. Some states may require the joint account owner to complete an affidavit and file it with the bank so that his or her portion of the funds in the account are not garnished.

Other states require the joint account holder or the debtor to file an exemption with the court. This exemption must establish that the joint account owner owns a portion of the assets in the account. This may be demonstrated by showing a direct deposit of his or her wages to the account or similar evidence. The exemption may take the form of an independent filing with the court or a standardized form, depending on the jurisdiction. The creditor must receive notice of the exemption. If it desires, the creditor can request a hearing in which the judge determines whether the funds should be exempted or not.

However, in community property states, the bank may still garnish the entire amount of the debt, which is viewed to be a marital debt and the responsibility of both parties.

Exempted Income

If the funds in the account derived from a particular source, the bank may not be able to garnish this portion of the funds in the account. Federal exemptions prohibit creditors from attaching benefits from Social Security, Supplement Security Income, railroad retirement benefits, federal retirement benefits, civil service retirement benefits, financial aid from federal agencies and student loan disbursements.

The bank has the duty to review deposits made within the last two months for such deposits. A debtor is allowed to keep two months’ of such benefits in the account that are not able to be garnished by the creditor. Having funds directly deposited to the bank can help establish exempted funds. Without this service, debtors might have to take extra steps to show that the funds in the account are exempt before the garnishment freeze will be lifted.

States may have a separate set of exemptions. Some states prohibit creditors from taking the first $1,000 or $2,500 in the account. Additionally, states may provide a greater exemption if the account is a joint one.

Other state exemptions may include proceeds from unemployment, state retirement benefits, disability benefits, workers’ compensation and public assistance. States may also preclude creditors from garnishing funds that derive from child support received, spousal support, retirement benefits and pension benefits.

These exemptions may not apply if the debt owed is for child support, student loans or federal taxes.

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