Which States Protect Bank Accounts from Creditors?

Disclaimer: We are not qualified legal or tax professionals and are not giving advice. Always speak with a qualified professional before making any legal or financial decisions.

You might wonder, "Can my bank accounts be garnished?" If you are facing garnishment or a frozen account, there are several ways to protect your account, including opening one in a state that protects against either garnishment or freezing.

So, which states offer this protection? And what about the other states, is there any way to protect your bank account during bankruptcy proceedings? Keep reading to find out!

If you'd like to skip the article and speak to a debt specialist, we offer a FREE consultation.

Garnishment Versus Freezing

Garnishment means that a certain percentage of your wages/salary is taken by your employer and used to pay off an outstanding debt. This process is often referred to as garnishable wages. If you're self-employed, you might wonder how creditors garnish wages if you are self-employed.

A creditor, or debt collector, can file a lawsuit and be granted a garnishment. In some cases, you might feel helpless against wage garnishment, but a good attorney can help. In some cases, you might feel helpless against wage garnishment, but a good attorney can help, especially when understanding what happens after a civil judgment. It's also crucial to know when a debt collector might sue.

The federal and state governments can garnish your wages without a court hearing. This is usually done in cases of outstanding child support or back taxes. You will get either a court summons or a formal letter from the agency.  Do not ignore either. If you’d like more information on dealing with a summons, check out this article. 

A bank accounts levy, often called freezing, prevents withdrawals but allows deposits. Both creditors and the government can levy bank accounts. Creditors must obtain a court judgment first, while the government can act without a hearing.

To enforce bank accounts levy, creditors must become judgment creditors through court action. This allows them to seize funds from your accounts. Government agencies, however, can freeze accounts without court involvement.

Federal law limits the amount that can be garnished to 25% of your net income (take-home pay) or 30 times the federal minimum wage ($217.50 at the time of writing), whichever is less.  If you owe student loans, your garnishment is limited to 15% of your net income. Certain federal benefits, such as Social Security and Veterans’ benefits, are also protected by law, making them non-tarnishable."

If you're curious about the specifics, you might want to know  what percentage of debt is typically accepted in a credit card settlement. Child support and alimony garnishment range from 50% to 65% of your net income, depending on your situation. There are legal ways to recover at least living expenses. Contact the court immediately. 

Protecting Retirement Accounts

Retirement accounts like 401ks and IRAs offer special protection from creditors. Federal law shields 401ks and ERISA-qualified plans, while IRAs, including those holding bank accounts, are protected up to $1 million in bankruptcy. To safeguard assets, consider maximizing contributions to these accounts and consult a financial advisor for optimal strategies.

Using Exempt Asset Protection Trusts

Exempt asset protection trusts offer another option for safeguarding funds. These trusts, which can protect bank accounts and other assets, are controlled by an independent trustee and are not legally owned by you. To be effective, they must be established before any legal actions begin. Proper trust drafting is crucial to ensure they withstand challenges.

Avoiding Fraudulent Transfers

Protecting assets from creditors requires caution. While safeguarding bank accounts is important, be wary of fraudulent transfer laws. Most states can reverse transfers made to hinder creditors or those causing insolvency. Consult an attorney before moving assets, as improper attempts could eliminate existing exemptions.

Which Funds Are Protected?

There are a number of sources of income that are protected by law. These include:

• Federal monies
• Social Security and Supplement Social Security Income (SSI)
• Veterans’ benefits
• Federal, civil service, and railroad retirement benefits
• Student loan and financial aid disbursements
• FEMA aid
• State monies (in general)
• Public assistance
• Workers Compensation
• State retirement benefits
• Unemployment benefits
• Disability benefits
• Other income depending on state laws
• Child support
• Alimony
• Certain insurance benefits
• Retirement and pension benefits

Keeping these funds separate from non-exempt income will help protect these funds from garnishment or levying.

How States Protect Against Garnishment

Each state has different laws governing wage garnishment for both consumer and government claims. These laws, which can affect bank accounts and other assets, vary widely and change frequently. Always double-check your state's current regulations. An asterisk (*) indicates that all or some garnishments are suspended in that state.

States that prohibit wage garnishment for consumer debt:

• North Carolina
• Pennsylvania
• South Carolina
• Texas

States that follow federal guidelines with exemptions as listed:

• Arizona
• Arkansas
• If the debtor is a laborer or mechanic, the following is exempt:
• 60 days of wages 
• first $25 earned per week after 60 days 
• Florida
• If the debtor is a head of the family (provides more than one-half of the support for a child or other person) and making $750 or less per week, 100% is protected
• Georgia
• Idaho
• Indiana
• If the debtor can prove that the amount should be reduced, it is 10 % to 25% of the debtor's disposable income
• Kansas
• Kentucky*
• Louisiana
• Maryland
• Michigan
• Mississippi
• First, 30 days of wages after the garnishment order is served are exempt
• Missouri
• If the debtor is the head of the household, then the following
• Exempt from garnishment, whichever is greater
• 90% of disposable income or 
• 30 times the federal  ($217.50) minimum wage
• Montana
• Nebraska
• If the debtor is the head of the household, then 
• Exempt from garnishment, whichever is greater
• 85% of disposable income or 
• 30 times the federal ($217.50) minimum wage 
• Ohio
• Oklahoma
• Rhode Island
• Tennessee
• $2.50 per week for each of the debtor's dependent children under the age of 16 who reside in the state
• Utah
• Wyoming

States with variable exemptions, based on whichever amount is greater. Indicate that some or all garnishments are suspended:

• California, Connecticut, District of Columbia*, Maine, Minnesota*, New Mexico* 
• 75% of disposable earnings, or 
• 40 times the state's minimum wage
• Colorado
• Follows federal wage garnishment guidelines through September 30, 2020
• Garnishments issued on or after October 1, 2020, whichever is greater
• 80% of disposable earnings or 
• 40 times the federal ($217.50) or state minimum wage ($492.80)
• Delaware
• 85% of disposable earnings or 
• 30 times the federal minimum wage ($217.50)
• Illinois*
• 85% of disposable earnings or 
• 45 times the state's minimum wage ($495)
• Massachusetts*
• 85% of disposable earnings or
• 50 times the federal ($217.50) or state ($675) minimum wage
• New Hampshire - Continuous garnishment not permitted, so creditors must file in court for each new paycheck
• 75% of disposable earnings or 
• 50 times the federal ($362.50) minimum wage 
• Vermont
• 80% of disposable earnings or 
• 40 times the federal minimum wage
• Virginia
• 75% of disposable earnings or 
• 40 times the federal minimum wage
• Washington
• 80% of disposable earnings or 
• 35 times the federal minimum wage
• West Virginia
• 80% of disposable earnings or 
• 50 times the federal minimum wage
• Wisconsin
• 80% of disposable earnings or 
• 30 times the federal minimum wage

Other states:

• Alabama
• Exempt from garnishment (every paycheck) whichever is greater
• $1,000 per paycheck or 
• the first 75% of disposable earnings
• Debtors cannot accumulate more than $1,000 in wages if claiming exception 
• Alaska
• Exempt from garnishment, whichever is greater
• $473 per week or
•  $743 per week if the debtor's earnings support their household, or 
• the first 75% of disposable earnings
• Hawaii
• Creditors may garnish
• 5% of the first $100 in disposable income per month
• 10% of the next $100 per month, and 
• 20% of all sums in excess of $200 per month. 
• UNLESS this amount is greater than the federal guideline amount, then federal guidelines must be used
• Iowa
• Sets maximum garnishable amount per year based on the debtor's income:
• Below $12,000: Up to $250
• $12,000 to $15,999: Up to $400
• $16,000 to $23,999: Up to $800
• $24,000 to $34,999: Up to $1,500
• $35,000 to $49,999: Up to $2,000 may be garnished
• $50,000 and above: No more than 10% of wages 
• Nevada*
• Exempt from garnishment, whichever is greater
• 82% of disposable earnings if gross weekly wages are $770 or less
• 75% of disposable earnings if gross weekly wages exceed $770
• 50 times the federal ($362.50) minimum wage
• New Jersey
• Exempt from garnishment
• 90% of income if the debtor's earnings are less than 250% of the federal poverty level or
• 75% of income is exempt if the debtor's earnings are more than 250% of the federal poverty level.
• New York
• Exempt from garnishment, whichever is greater
• 90% of the debtor's gross earnings or
• 75% of the debtor's disposable earnings or
• 30 times the federal ($217.50) minimum wage
• North Dakota
• Exempt from garnishment, whichever is greater
• 75% of disposable earnings or 
• 40 times the federal ($290) minimum wage
• Plus additional $20 per week for each dependent family member who resides with the debtor
• Oregon
• Exempt from garnishment, whichever is greater
• 75% of disposable earnings or 
• one of the following amounts based on the debtor's pay frequency
• $254 per week
• $509 per any two-week period
• $545 for any half-month period
• $1,090 for any one-month period
• South Dakota
• Exempt from garnishment, whichever is greater
• 80% of disposable earnings or
• 40 times the federal minimum wage
• Plus an additional $25 per week for each dependent family member who resides with the debtor
  

States with Levy Protection

Some states offer levy protection, meaning that all or some of the money in bank accounts is protected. 

Unlisted:

• Nebraska
• Tennessee
• California
• Colorado
• Florida
• Hawaii
• Kansas
• Louisiana
• Michigan
• Minnesota
• Mississippi
• Montana
• Nevada
• Oklahoma
• Rhode Island
• Texas
• Utah
• Virginia
• Wyoming

States protecting $1,000 or less, unless federally protected and you can prove the provenance of the money

• Arizona ($150)
• Arkansas ($800 or $1250)
• Connecticut ($1,000)
• Delaware ($500)
• D.C. ($850)
• Georgia ($600)
• Idaho ($800)
• Iowa ($100)
• Kentucky ($1,000)
• Maine ($400)
• Massachusetts ($425)
• New Jersey ($1,000)
• North Carolina ($500)
• Ohio ($425)
• Oregon ($400)
• Pennsylvania ($300)
• Washington ($500)
• West Virginia ($800)
• Wisconsin ($1,000)

States protecting $1,001 - $4,999, unless federally protected and you can prove the provenance of the money

• Alabama ($3,000)
• Alaska ($1,820 or $2,860)
• Illinois ($2,000)
• Indiana ($4,000)
• Missouri ($1,250)
• New Mexico ($2,000)
• New York ($2,500)
• Vermont ($1,100)

State protecting over $5,000, unless federally protected and you can prove the provenance of the money

• Maryland ($6,000)
• New Hampshire ($8,000)
• North Dakota ($7,500)
• South Carolina ($5,000)
• South Dakota ($6,000)

Can I Open a Bank Account in the States with Garnishment and Levy Protection?

The answer isn't straightforward, as it depends on state laws and bank regulations. Protecting bank accounts from garnishment may require state residency or employment. However, moving money when facing potential levies could be considered fraudulent. Consult a qualified lawyer or CPA before taking action.

If you'd like some other ideas, check out How To Open a Bank Account That Cannot Be Levied.

Bankruptcy Protection for Wages and Bank Accounts

Filing for bankruptcy can protect your wages and accounts from garnishment and levies. When you file, an automatic stay prevents creditors from accessing your bank accounts or garnishing wages during the case.

Chapter 7 bankruptcy discharges eligible debts, eliminating creditors' ability to pursue your bank accounts or other assets. Chapter 13 involves a 3-5-year repayment plan, during which creditors cannot access your bank accounts if you stay current on payments.

Consult a qualified bankruptcy attorney to determine if Chapter 7 or 13 could effectively safeguard your income and bank accounts from creditors. They can guide you on the best approach to protect your financial assets.

Removing Judgment Liens

When creditors secure a judgment against you, they may impose a judgment lien on your property. This legal claim extends to various assets, including bank accounts, giving creditors the authority to seize and liquidate your property to settle the debt.

You may be able to remove a judgment lien by:

• Settling the debt with the creditor
• Proving the creditor did not properly obtain or record the lien
• Filing for bankruptcy (the lien is removed when debts are discharged)

To remove a judgment lien and protect your assets, including bank accounts, consult a lawyer. Eliminating the lien prevents creditors from seizing your property.

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