1. Home
2. Bankruptcy Articles
3. Bank Account Seizures

Bankruptcy Articles

Friday, January 2nd, 2009

by Theodore Sliwinski, Esq.

 Bank Account Seizures

Are you worried that someone who has a judgment against you will go after your bank account? Many of my clients are petrified and live in constant fear that their hard earned savings will be zapped by a creditor if they leave it in their bank account. However, there are strict rules that must be followed for anyone trying to seize a bank account. Moreover, many distressed debtors have numerous asset protection strategies that they can use to protect their last remaining dollars.

To begin with, any debt collector(s) must have a court judgment against you before he or she can get at your bank account. In a perfect world, the best course of action is to try to negotiate a reasonable payment plan instead of letting someone obtain a judgment against you. However, if you do end up with a court judgment against you, then you consider moving funds from your bank account.

Another move might be to open up a bank account in another state. It is important to emphasize that the out of state bank must not have any branches in New Jersey. A New Jersey writ of execution or a bank levy is only valid only in the Garden State and not in New York or Pennsylvania. However, if you decide to keep your accounts in an out of state bank, then this bank must not have any branches in New Jersey. If an out of state bank does have branches in New Jersey, then this type of asset protection planning will not work.

A debt collector will be targeting your bank accounts that is titled in your name only, or in the name of you and your spouse. However, any bank accounts in your name and the name of someone else other than your spouse will be more difficult for a debt collector to garnish or seize.

Even if the bank account is titled in your name only, there are some types of funds that are considered exempt from debt collection under New Jersey law and/or federal law. The rationale behind these laws is to allow people to preserve the basic necessities for living. Exempt funds only remain exempt when they are deposited in your checking, savings or CD accounts, and only if these funds are readily available for the day to day needs of the recipient. Moreover, these funds can’t be converted into a permanent investment. The most common type of exempt funds are from government benefits. These type of benefits include Social Security, unemployment insurance, veterans’ benefits and public assistance. Moreover, most funds from pensions are also exempt from a bank levy.

When the bank receives a notice from the debt collector, the bank must immediately freeze any funds in your account that are not exempt from collection. This notice is called a bank levy. That means you can’t withdraw the money or use it to pay checks you have written. If you have already written checks on the account and are in danger of bouncing, then you will want to make other arrangements for payment on those checks.

When you receive a notice from the debt collector or from a bank that your account has been frozen, then you will have to notify the bank and the debt collector in writing if the funds in the account are exempt. In the perfect situation, you would be able to prove that all the funds in a particular bank account are exempt. However, if you have commingled exempt and non-exempt funds, then it will become much more difficult to protect your bank account. Therefore, if you know ahead of time that you will have a court judgment entered against you, then it makes perfect sense to keep the exempt funds in a separate account. Moreover, you should not commingle exempt and non-exempt funds in the same account. If you wish to protect your exempt benefits you should keep your funds in banks to which you do not owe money, and you should segregate your public assistance funds in special purpose accounts clearly designated as such.

Once your bank account is frozen, then your creditor must file a motion that requests a turnover of your seized account. This type of motion is called a turnover motion. At this hearing, you will be permitted to explain why the frozen funds shouldn’t be seized. There usually is not a lot of time to protest a bank levy, so it is best to move quickly. And the sooner you act, the sooner the exempt funds will again be available for your use.

It’s important to provide detailed documentation that the funds in the account are from entirely exempt sources. For instance, you might provide:

* Bank deposit slips
* Paystubs
* Statements from government benefit agencies
* Statements from insurance companies
* Pension or annuity statements
* Bank account statements and registers
* Any other documentation you can find that traces the funds from an exempt source into that particular bank account

It’s best to provide the detailed document to the debt collector and the court ahead of time, in as clear a manner as possible.