Garnishment and account levies

Garnishment is the legal process by which a creditor reaches funds held by a third party — typically the debtor's bank or employer — that belong to the debtor. For bank accounts, the creditor's writ of garnishment requires the bank to hold available funds up to the amount of the underlying judgment, then remit them to the creditor after a statutorily defined waiting period. The bank is bound by the order; the consumer's recourse is to assert any applicable exemptions in court, typically within a tight window.

This article describes the principal categories of garnishment and levy that affect U.S. consumer bank accounts, the federal benefit protections under 31 CFR Part 212 (the "two-month rule"), and the practical steps for asserting exemptions. The companion article on the bank-side mechanics is when your account is frozen.

Judgment garnishment

A creditor that has obtained a court judgment against a consumer can typically use post-judgment garnishment to reach the consumer's bank account. The process varies by state but generally involves:

1. The creditor obtains a writ of garnishment from the court.
2. The creditor serves the writ on the bank.
3. The bank, upon receipt of the writ, identifies the consumer's accounts and freezes funds up to the amount specified, typically as of the writ's effective date.
4. The bank gives notice to the consumer (timing varies by state, but typically within a few business days).
5. The consumer has a defined window — often 14 to 30 days — to file objections, assert exemptions, or otherwise contest the garnishment in court.
6. If the consumer does not successfully object within the window, the bank remits the frozen funds to the creditor.

The categories of consumer debt that produce judgment garnishments are typically credit-card debt, medical debt, deficiency balances on repossessed vehicles, and personal-loan defaults. The creditor must first obtain a judgment; this requires filing a lawsuit, serving the defendant, and either obtaining a default judgment or winning a contested case. Many consumers do not appear at the lawsuit stage and receive default judgments without realizing it; the first notice of the debt the consumer takes seriously is often the garnishment of the bank account.

Federal benefit protections (31 CFR Part 212)

Federal law protects certain federal benefit payments from garnishment by judgment creditors. The protection runs through 31 CFR Part 212, a Treasury regulation that requires the bank, upon receipt of a garnishment order, to perform a "lookback" for federal benefit payments directly deposited into the account during the preceding two months. The bank must identify the total of such payments in the lookback period and protect that amount from the garnishment — the funds remain available to the consumer while only the non-protected portion is subject to garnishment.

The protected federal benefits include:

• Social Security retirement, disability, and survivors' benefits.
• Supplemental Security Income (SSI).
• Veterans benefits.
• Railroad Retirement benefits.
• Federal civil-service retirement benefits.
• Office of Personnel Management retirement benefits.

The "two-month rule" works automatically — the bank is obligated to perform the lookback whenever a garnishment order is served, without the consumer needing to request it. The protected amount is the smaller of the actual federal benefits directly deposited in the lookback period or the account's balance at the time of the order.

Two important limits. First, the Part 212 protection applies only to benefits delivered by direct deposit; cash and check deposits of benefits are not automatically protected (although they may be exempt under state law if the consumer can trace the funds to a protected source). Second, the protection does not apply to garnishment by certain federal entities themselves — child-support garnishments, federal student-loan administrative offsets, and IRS levies operate under separate rules and can reach federal benefits to a defined extent.

IRS levies and other federal levies

The IRS can levy a bank account under 26 U.S.C. §6331 to satisfy unpaid tax debt. Unlike judgment garnishment, an IRS levy does not require a court order; the IRS issues the levy administratively after defined notice procedures (the Notice of Intent to Levy and the Final Notice of Intent to Levy and Notice of Your Right to a Hearing). On receipt of the levy, the bank holds the funds for 21 days before remitting them to the IRS. The 21-day period gives the taxpayer time to resolve the underlying debt or to obtain release of the levy through Taxpayer Advocate Service intervention, an Offer in Compromise, an installment agreement, or a CDP (Collection Due Process) hearing.

Other federal levies — Department of Education administrative offsets for student-loan default, Department of Treasury offsets through the Treasury Offset Program — operate under their own rules. The Treasury Offset Program in particular can intercept federal tax refunds and certain federal benefit payments to satisfy delinquent federal debts; the protection of benefit payments in the offset context follows different rules from the Part 212 protection of benefits in the bank-account context.

State-law exemptions

State law adds substantial exemptions on top of the federal-benefit protection. The categories and amounts vary considerably across states; common exemptions include:

• Wage exemptions: most states limit the amount of post-judgment wage garnishment to a defined percentage of disposable income; the Consumer Credit Protection Act sets a federal floor (typically 25% of disposable earnings or the amount by which weekly earnings exceed 30 times the federal minimum wage, whichever is less).
• Head-of-household exemptions: many states give additional protection for the wages of a head of household supporting dependents.
• Account-balance exemptions: some states (notably Texas, Florida, and a few others) protect a defined amount of bank-account balance from judgment garnishment.
• Public-assistance exemptions: state unemployment benefits, workers' compensation, and similar payments are typically exempt from garnishment under state law even where federal Part 212 does not reach them.

State exemptions typically must be asserted by the consumer through a formal claim in the garnishment proceeding; they do not apply automatically. A consumer facing garnishment should consult an attorney or a legal-aid organization in the relevant state to identify and assert applicable exemptions within the deadline.

What to do when garnishment happens

The practical sequence:

1. Read the notice from the bank carefully. It will identify the creditor, the underlying judgment, and the amount subject to garnishment.
2. For garnishments involving directly deposited federal benefits, verify that the bank correctly applied the Part 212 lookback and protected the appropriate amount. If the bank's calculation appears to have missed protected benefits, contact the bank promptly.
3. For garnishments where state-law exemptions may apply, contact a legal-aid organization or attorney in the consumer's state. The deadline to assert exemptions is short; missed deadlines cannot easily be cured.
4. Consider the merits of contesting the underlying judgment. For default judgments obtained without proper service of process, the judgment can sometimes be vacated, which would invalidate the garnishment.
5. For unpayable IRS debts, contact the Taxpayer Advocate Service (a CFPB-equivalent independent organization within the IRS) for hardship relief.

Limits and uncertainty

The federal Part 212 framework has been stable since 2011, with refinements through subsequent rulemakings. The state-law exemption framework varies considerably and changes incrementally. The IRS-levy framework is statutory and has been substantially the same for decades. The principal evolving area is the interaction of garnishment with newer payment patterns (P2P apps, prepaid accounts) and with the increasing use of administrative offset by various federal agencies; the framework around these is less settled.