Switching Banks Does Not End Court-Ordered Garnishments or Levies on Debt

Rising credit card debt and high borrowing costs have increased financial pressure on borrowers, leading to higher rates of unpaid and overdue debt. Credit card annual percentage rates remain above 21 percent, and payment delinquency rates are increasing. This situation has resulted in more borrowers facing lawsuits over delinquent debt.

When a creditor obtains a court judgment for unpaid debt, it can use tools such as wage garnishment or bank levy to collect. Wage garnishment involves withholding from an employee's paycheck, while a bank levy freezes funds in an account. Borrowers may consider switching banks to protect their funds, but this action does not resolve the underlying court order.

A garnishment or levy order is linked to the debtor, not a particular bank account or institution.

If a borrower switches banks, the creditor can issue a new levy to the new account once its location is identified. Creditors identify new accounts through methods including post-judgment discovery requests, which require disclosure of financial accounts under oath; subpoenas to employers for direct deposit information; information databases in some states; or debtor examinations where the individual must answer questions about assets under oath.

Wage garnishments operate separately from bank accounts, as the order is served on the employer.

Changing direct deposit details does not prevent the employer from withholding the specified amount before the funds reach the employee. Federal law limits wage garnishment to 25 percent of disposable earnings or the amount by which weekly earnings exceed 30 times the federal minimum wage, whichever is less.

Certain funds are exempt from bank levies in most states, including Social Security benefits, Supplemental Security Income payments, veterans' benefits, and federal student loan disbursements.