Which States Protect Bank Accounts from Creditors? (2024)

We are not lawyers and we strongly recommend speaking to a qualified specialist for more information.

You might even wonder if my bank account can 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 provides protection against either garnishment or freezing.

So, which states actually 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.

Freezing an account is properly known as levying, sometimes referred to as a bank account levy. When an account is levied, the bank will not allow you to remove money from your account. You can put money in but you can not get it back. As with garnishment, both creditors and the government can levy an account. Creditors must sue in court and be named as a judgment creditor to enforce bank account levies.

Creditors must sue in court and be named as a judgment creditor. At that point, the creditor can seize funds within your account. The government can freeze an account without a court hearing.

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 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-garnishable."

Protecting Retirement Accounts

Retirement accounts like 401ks and IRAs have special protection from creditors and debt collectors. Under federal law, 401ks and other ERISA-qualified plans cannot be garnished by creditors. IRAs also receive protection up to $1 million (adjusted for inflation) under federal bankruptcy law. Some states provide additional protection for IRAs outside of bankruptcy.

If you are facing collections or judgments, be sure to maximize contributions to retirement accounts to shield assets from creditors. Talk to a financial advisor about the best retirement account strategies for asset protection.

Using Exempt Asset Protection Trusts

Another option is to place funds into an exempt asset protection trust. These trusts are designed so that the assets are not legally owned by you, preventing creditors from seizing them. The assets are controlled by an independent trustee.

To be effective, these trusts must be set up before any judgments or collection actions are initiated. Transfers of assets to the trusts after that point could be reversed. Proper trust drafting is essential to ensure the trusts withstand legal challenges.

Avoiding Fraudulent Transfers

When moving assets to protect them from creditors, it is important not to make fraudulent transfers. Under the Uniform Fraudulent Transfer Act adopted by most states, transfers made with actual intent to hinder, delay, or defraud creditors can be reversed. Even if that intent cannot be proven, transfers made while insolvent or that render you insolvent can also be reversed.

Consult an attorney before transferring or hiding assets to fully understand fraudulent transfer laws in your state. Attempting to shield assets could backfire and eliminate exemptions you would otherwise be entitled to.

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 disbursem*nts
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 that govern wage garnishment for both consumer and government claims. Always double check the laws with your state as laws change frequently. An * 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 debtor is laborer or mechanic, the following is exempt:
60 days of wages
first $25 earned per week after 60 days
Florida
If debtor is a head of 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 debtor can prove that the amount should be reduced, it is 10 % to 25% of debtor's disposable income
Kansas
Kentucky*
Louisiana
Maryland
Michigan
Mississippi
First 30 days of wages after garnishment order is served are exempt
Missouri
If 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 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 debtor's earnings are less than 250% of the federal poverty level or
75% of income is exempt if 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 an account 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 States with Garnishment and Levy Protection?

The answer to this question does not have a simple answer. First, it depends on the state laws and the individual bank’s regulations. You may be required to be a resident of that state or work in that state.

The other concern is the legality of moving money knowing that your accounts may be levied or garnished. In some cases that can be considered fraud or fraudulent conveyance. Before you move money, ask a qualified lawyer or CPA for advice.

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 is one way to protect your wages and bank accounts from garnishment and levies. Under bankruptcy law, an automatic stay goes into effect when you file your petition. This prevents creditors and debt collectors from garnishing your wages or levying your bank accounts while your bankruptcy case is pending.

In Chapter 7 bankruptcy, eligible debts like credit cards and medical bills are discharged. This eliminates the creditors' ability to garnish wages or levy bank accounts for those debts going forward.

In Chapter 13 bankruptcy, you enter into a 3-5-year repayment plan to pay back some or all of your debt. Creditors are prevented from garnishing wages or levying bank accounts as long as they stay current on the Chapter 13 plan payments.

Talk to a qualified bankruptcy attorney to see if filing Chapter 7 or Chapter 13 bankruptcy could help protect your wages and bank accounts from creditors.

Removing Judgment Liens

If a creditor has already obtained a judgment against you, they may have placed a judgment lien on your property. This gives them the right to seize and sell your property to satisfy the judgment.

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)

Consult a lawyer to determine your options for removing a judgment lien against your property. Getting the lien removed eliminates a creditor's ability to seize your assets.

Frequently Asked Questions

Conclusion

Facing garnishment or bank levies can be financially and emotionally challenging, but it's not a battle you're in alone. Federal and state laws offer protections, and there are strategic steps you can take to safeguard your assets. By understanding your rights, keeping exempt and non-exempt funds separate, and consulting with a professional when necessary, you can navigate these challenges more effectively.

Remember, the key to protecting your finances lies in being informed, proactive, and ready to explore all available options. If you're overwhelmed, consider reaching out for a free consultation to explore your best course of action. Stay informed, stay protected, and take control of your financial future.

If you are struggling with overwhelming student loan debt and want to explore relief options, Pacific Debt Relief offers a free consultation to assess your financial situation. Our debt relief specialists can provide objective guidance to help find the right student loan debt solution.