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Did you know that federal legislation now mandates that your banks protect two months’ worth of your direct deposits? In other words, if you have had your salary direct deposited into your checking account, your bank must protect the last two months worth of those deposits.
What else is exempt
Any government benefits you get, most retirement funds and your Social Security are also exempt from being garnished unless it's to pay child support, a government debt or alimony. This is a fairly new rule as before May 2011, banks would automatically freeze your funds the minute they received an order to garnish your funds.
Your wages can be garnished but …
Unscrupulous debt collectors may threaten to garnish your wages. However, they cannot do this by themselves. They must file suit, get a judgment and then enforce the judgment. Depending on the size of your debt, the collector may ask that your wages be garnished or could ask for a lien against one of your assets. In most cases, that asset will be your house.
If the debt collector gets a judgment
If a debt collector is able to get a judgment to have your wages garnished you have some protection. This is because banks are required to protect two months' worth of direct deposits. They are required to research the history of your deposits to ensure that it protects your direct deposited exempt funds back two months from when there was the garnishment order. If you have more money in your account these funds will also be protected from garnishment. It just doesn't happen automatically.
You must receive notice
Banks are also required to mail you notification that it has received a garnishment order along with instructions as to how you are to complete the garnishment exemption claim form. You will need to carefully follow the instructions that are sent by the bank and be sure to get the form back within the specified time period. If you do this, the bank cannot send your money to your creditor until it has made sure that they are exempt from being garnished.
Your state laws
You might have to appear before a judge. This would be to prove that your funds are exempt. This will depend on the state where you live. If a court is involved, you should have your own attorney. It's expensive to hire an attorney but when you're dealing with the law, having an experienced professional next to your side can help make things go much smoother.
How to totally avoid garnishment
As the old saying goes, the best defense is a good offense. If you're having a serious problem with debts and are being harassed by collectors, don't wait until one of them files suit. Go on the offense instead and do something to get those debts under control. For example, if you have a sufficient amount of equity in your house you could probably get a debt consolidation loan. This would get rid of all those creditors and collection agencies and leave you with just one monthly payment, which should be less than the total of the monthly payments you are making now. Consumer credit counseling is another good option that's been used by many families with success. The odds are that there is a credit-counseling agency in your area that could help. If not, it's easy to find one online. Just make sure it's nonprofit and doesn't require any fees upfront.