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How a Bank Garnishment Works in California
Just because you owe someone or some company money does not mean they have immediate access to your or your spouse’s bank account. Before taking any action against your property, the creditor must obtain a court judgment that affirms that you owe the debt. Once a judgment is received, the creditor is permitted to petition the court to issue a writ of execution. The writ is what a county sheriff will deliver to your or your spouse’s bank.
Under California law, a judgment creditor can access your deposit accounts, any joint accounts you might have, your spouse’s bank account, and any bank account you or your spouse might have under a fictitious business name.
The writ of execution will only apply to funds that are in the accounts at the time the sheriff serves the writ on the bank. It is important to note that the sheriff is not required to serve the writ on your specific bank branch. If your accounts are in a bank with more than ten branches, only the central branch is required to be served.
When your or your spouse’s bank receives the writ, all accounts will be frozen. This means that from that moment on, you will not have access to your funds. You will not be able to withdraw money from an ATM, any check you write will not be honored, and you are not permitted to withdraw funds from the bank itself. The sheriff must notify you of the freeze, so it should not be a surprise. Once the levy has occurred, you have ten days to submit a challenge. Your bank is not allowed to release any funds to the judgment creditor before the ten days have elapsed.
California Exemptions to a Garnished Bank Account
Fortunately, a debtor has some remedies under California law. Unfortunately, these remedies will not help many people. You are permitted to exempt certain deposits from garnishment. These deposits include any Social Security payments, most California welfare benefits, and wages are typically 75 percent exempt.
Our California bankruptcy attorneys can assist you in filing your exemptions. The documents presented must include a detailed description and evidence of the source of the funds. A judgment creditor has a right to object to any exemption claimed. If this occurs, a court will decide whether your exemption is valid.
California Bank Garnishments and Bankruptcy
One remedy available to every California resident is filing for bankruptcy. Unfortunately, there is a great deal of misinformation regarding the benefits and negative consequences of bankruptcy.
If you or your spouse’s funds are garnished because of your debt, you could have the money released by filing for bankruptcy. You are not required to file jointly. Therefore, your spouse does not have to file for bankruptcy to benefit from your filing.
The Automatic Stay
As soon as you file a bankruptcy petition, a court-imposed injunction goes into effect. This injunction, commonly referred to as an automatic stay, prohibits all creditors from taking any action to collect on a debt. This stay includes any legal or court proceeding as well. If your spouse’s funds were frozen, the bank would be required to release the funds once notified of the bankruptcy.
The Bankruptcy Estate
Filing for bankruptcy will end a bank garnishment and stop a bank from turning over funds in your spouse’s account to your judgment creditor. However, the process does not end there, and the funds are not necessarily safe.
Another thing that occurs when you file for bankruptcy is that all your property, including bank accounts, becomes part of the bankruptcy estate. Because California is a community property state, your spouse’s bank account will also be included in your bankruptcy estate.
How the property in your bankruptcy estate will impact your case depends on what chapter of bankruptcy you filed and what exemptions you have available.
Chapter 7 Bankruptcy and Bank Garnishments in California
In Chapter 7, any nonexempt property in your bankruptcy estate is available to be turned over to a court-appointed trustee. The trustee will take possession of the property, sell it, and distribute the proceeds to your creditors. If you cannot exempt the money in your spouse’s bank account, it will be turned over to the trustee. Our experienced California bankruptcy attorneys are familiar with the exemptions available and will advise you before filing if any property is in danger of being sold. In many cases, a debtor has access to a wildcard exemption that could be used for their deposit accounts. If you are unable to protect your spouse’s account, you have the option of filing for Chapter 13.
Bank Garnishments and Chapter 13 Bankruptcy in California
One of the significant differences between Chapter 13 and Chapter 7 is that you will be paying some or all your creditors through a Chapter 13 plan. The bankruptcy plan will last three to five years. What you will be required to pay will be based on various factors, including your debt, your income, your total expenses, and your nonexempt property. Our California bankruptcy attorneys will thoroughly review your assets, creditors, and income to draft a plan that complies with the Bankruptcy Code.
While the full requirements a bankruptcy plan must comply with are too detailed for this article, it is not difficult to understand how your spouse’s bank account impacts your plan. To illustrate how nonexempt property affects your bankruptcy, imagine you have $65,000 in credit card debt. Your spouse’s bank account has funds totaling $15,000. Out of the $15,000, you can exempt $10,000. Therefore, $5,000 is nonexempt. You will be required to pay the nonexempt portion, or $5,000, towards the $65,000 that you owe. Again, this is a simplified example. However, in this case, instead of having the full $15,000 turned over to your judgment creditor, you can protect $10,000 while paying the remaining $5,000 over three to five years.
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