Chapter 7 Bankruptcy – Learn all you need to know about it

What Is a Chapter 7 Bankruptcy

Bankruptcy is the process by which a person can relieve himself of some or all of this debts under the guidelines laid down by the bankruptcy law.

Chapter 7 bankruptcy allows the discharging of debts after going through the process of liquidation of eligible assets.

The liquidation allows the borrower to pay back the creditor fully or partially, mostly partially. The assets that can be liquidated and those that are exempt is decided by the bankruptcy state law.

Any debt that remains after asset liquidation is discharged and the borrower can no longer be held legally liable or responsible to pay it.

The creditors or collectors will not have any rights to pursue recovery of the debts that have been discharged.

A chapter 7 bankruptcy will usually be discharged within 4 months of filing.

Information Needed to File a Chapter 7 Bankruptcy

The filing of a chapter 7 bankruptcy starts with the process of putting in required forms and information with your local bankruptcy court.

The information and the paperwork that you will usually have to provide during the time of filing is as follows:

  • A schedule of assets and liability which lists all your creditors and the nature of your debt claims.
  • A statement of current income and liabilities which must include your source of income, amount along with your monthly living expenses.
  • ‘A statement of financial affairs’ form will need to be filled out. This form will ask questions pertaining to your income over the past three years, debts you owe, repossessions, foreclosures etc.
  • A schedule of executory contracts and unexpired leases that you have not yet fulfilled.
  • You need to provide the court with a copy of your most recent tax return and any other returns you file while your bankruptcy case is still open.
  • If you have a lot of consumer debt as opposed to personal debt you will need to file a certificate of credit counselling completion from a government approved credit counselling agency along with a copy of any debt repayment plan that has been proposed by the agency.
  • It is mandatory to receive credit counselling from an approved credit counselling agency not later than 180 days prior to the bankruptcy filing.

What Happens After You File for Chapter 7 Bankruptcy

The first thing to happen after a chapter 7 filing is that a trustee is assigned to the bankruptcy case. The exception is if you live in Alabama or North Carolina where a member of the bankruptcy court fulfils the function of a trustee.

The job of the trustee is to review the assets and determine which ones are exempt and which ones are non-exempt. Non-exempt assets are absorbed by the state and sold to pay back the creditors that you owe.

Assets that are exempt cannot be taken by the state and remain under ownership and control of the debtor.

If the trustee funds that all your assets are exempt then he will file a “no asset” report with the bankruptcy court.

It is a fact that most chapter 7 bankruptcy cases are no asset cases.

In case your bankruptcy filing involves non-exempt assets your creditors are allowed to file a claim for the distribution. They are given 90 days after the first date set for the meeting of the creditors to file their claims. The government creditors will have 180 days to file their claim.

Usually between 20 to 40 days after filing for bankruptcy the first meeting of the creditors is held. The borrower who is filing is required to attend along with the trustee assigned to the case.

The creditors are allowed to ask the trustee and the consumer questions about finances and assets. If the bankruptcy has been filed jointly with a spouse then both of them need to be present at the meeting.

Chapter 7 Bankruptcy Means Test

The U.S. government has passed a law that is meant to test a consumer’s claim to a bankruptcy.

The means test is designed to prevent abuse of the bankruptcy system and ensure that the consumer is truly unable to pay off his current debt.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 requires this step.

If the current monthly income is less than the median income for a household of your size in your state, you pass. You do not need to complete the rest of the means test. You can file for Chapter 7.

If a person makes more than the state’s median income the calculations get complicated. The court will try to arrive at projected monthly income over the next 5 years. It is best to consult a bankruptcy attorney or an accountant who specialises in bankruptcy at this point.

If you fail the means test, the bankruptcy filing will either be rejected the court or given the option to be converted to a chapter 13 bankruptcy filing.

How to Qualify for Chapter 7 Bankruptcy

Chapter 7 bankruptcy is typically harder to file than a chapter 13 bankruptcy. Also a chapter 7 bankruptcy stays for a longer period of time on the credit report of the borrower.

There are a few conditions and tests that an individual needs to pass before he can qualify for filing. The following are the requirements for filing under chapter 7 bankruptcy.

  • Your income must qualify the means test.
  • A person can only file for a chapter 7 bankruptcy if the monthly income is below the state’s median income for the family of his/her size. The consumer is required to go through the means test if more than half of his debt is from consumer purchases rather than business, tax or tort debts.
  • You need to be an individual, married couple or a small business owner to qualify. You cannot file a chapter 7 bankruptcy on the behalf of a Corporation, LLC or a partnership.

You can file a chapter 7 bankruptcy if you are:

  1. An individual married and filing jointly with your spouse.
  2. A sole proprietor with personal liability on business debts.
  3. Half owner of a business partnership with someone other than your spouse and are filing bankruptcy on business debts that you have personal liability on.

How long does it take to discharge a chapter 7 bankruptcy

From the date the papers are first filed till the time that debts are discharged it takes usually takes about 4 months.

Discharge papers are automatically sent to all creditors letting them know that the debt has been discharged and that the creditors no longer have any legal right to try and collect the debt from the consumer any more.

A chapter 7 bankruptcy will remain on the credit report of the consumer for a period of 10 years and the person cannot file another chapter 7 bankruptcy for another eight years.

The same person will also not be able to file for a chapter 13 bankruptcy for another 4 to 6 years, the exact duration of which must come from your local court or a qualified attorney.

Costs of Filing for a Chapter 7 Bankruptcy

The filing for a chapter 7 bankruptcy costs a total of $309.

The breakup of this amount is as follows: The filing fee is $245, $39 for miscellaneous expenses and $25 for the trustee fee.

These are the official government fees and charges. If you choose to hire an attorney yourself it will be an entirely separate expense. The bankruptcy filing charges are supposed to be paid to the clerk of court when you file your bankruptcy paperwork.

It is possible to get the permission of the court to make the total payment in a maximum of four instalments.

In such a scenario the final payment is due no more than 120 days after you file. It is possible to get the bankruptcy fee waived altogether if you make less than 150% of the poverty level and you cannot afford to pay the fee at all even on instalments.

Not paying the bankruptcy fee when it is due will result in the bankruptcy filing being dismissed.

How to avoid filing for bankruptcy

Usually there are many reasons why a person might want to avoid filing for bankruptcy. For one, a recovery from a bankruptcy filing, from a credit standing point of view, can be difficult. This is especially true when the economy is facing a down turn and lenders are already sceptical about lending money. Of course, taking on further debt right after your have filed for bankruptcy should be the furthest thing on your mind. However, in order to get back on your feet you, this might the hour of your greatest need as well.

We have dealt with the topic of how to recover from bankruptcy in several posts in this section. Have a read through them. In the post we are going to talk about how you can avoid filing for bankruptcy if at all it can be helped.

Avoiding Bankruptcy by Paying Off Your Debt

Many people are unaware that if you file a chapter 13 bankruptcy you have to come up with a repayment plan to pay off your existing creditors. This payment plan usually does not require a payment in full and several of your assets can be exempted from debt recovery. However, you may find it will worthwhile to consider if you can pay off your creditors without filing for bankruptcy. You need to take a closer look at your budget and expenses. You will probably need to cut down on surplus expenses you can do without such as cable television, cell phones and entertainment bills.

You can also explore if there is a way to increase and supplement your existing income in some manner. Maybe you can use one of your hobbies or skills to work over weekends to make extra money. Maybe you can work overtime or take on an extra job. If your spouse’s the non-working member of the family maybe he or she can take on a part-time or full-time job as well.

Avoid bankruptcy by taking help from family and friends

Borrowing money from family and friends is never easy. When money matters are included between people who love each other it can easily create misunderstandings and hardships in the relationship. At the end of the day it all depend on who you ask and what kind of relationship you share with that person.

Before you ask your family or friends to help you pay off your debts take a close look at your own financial resources. Be honest about how much you can come up by yourself rather than rely completely on borrowed money.

Calculated the maximum amount money that you can pay yourself and then presents the marginal amount to the people you are seeking help from. Also come up with an organised plan to to pay them back. If it is going to take you a while before you can pay the money back, make them aware of this.

Be perfectly honest with yourself as well as the people you are borrowing money from so that there are no misunderstandings in your personal relationships.

Avoid Bankruptcy by using credit counselling services

Taking the help of a consumer credit counselling is an alternative to filing for bankruptcy in two ways. First of all a consumer credit counselling can help you manage your finances and come up with a budget that creates more disposable income on your current income source.

They can educate you to how to manage your finances better so that you have the ability to start paying of your current debt. The important thing is to find a legitimate and accredited consumer counselling service.

The second way in which a consumer credit counselling service can help you avoid bankruptcy is by enrolling you in a debt management plan. A debt management plan typically works by reducing your payment and interest rates with a creditors. A consumer credit counselling service that has an experience with working in this field will be able to consolidate all your debts and negotiate with your current lender is in order to reduce your monthly payments and interest rates.

Credit counselling is worth considering since the new bankruptcy law makes it mandatory for any person filing for bankruptcy.

Avoid bankruptcy by settling debts

You may think at this point that if you could pay off debts you would not be filing in the first place. But settling debts is different from actually paying them off.

Settling debts involves speaking to the creditor and negotiating the amount you can pay back.

You may be surprised with how much a lender is willing to settle for once you convey the true nature of a financial hardship.

While settling debt is also not very good for the credit score it is preferable to filing for bankruptcy. Using a debt settlement company at this point may not be a very good idea as they will add to the cost and in some cases cause dire harm to your credit rating. You should first settle the debts that have been sent to a collection agency for recovery.

Before you try and negotiate with the creditors and the debt collection agencies to settle a debt make sure that you need to know how much you can afford to pay back. This way you will know what offer to make to the creditor.

Try and be prepared to make the payment as soon as an agreement is reached. Sometimes the very basis of a settlement is that a creditor wants his money back sooner than later even if the amount is lesser than what is owed to him. The agreement may also be reached on the basis of making the repayment soon.

Avoid bankruptcy by liquifying your assets

When you do not have ready liquid finances to pay off your debt you can use your intangible assets to repay some of the money you owe. Take action as quickly as possible and see if you can sell off some of the furniture, jewellery and electronics to get additional funds. Selling of items on eBay, craigslist etc. can provide you with the funds that you need to avoid bankruptcy.

You may want to consider this because while a bankruptcy filing may be able to get rid of your loans for the moment it may damage your credit rating so severely that you may find yourself bereft of a lot of services and utilities in the future. You may find it difficult to get a house on rent, qualify for a loan, get a credit card or even gain employment.

Selling off some of your assets may result in some inconvenience and discomfort. But it just might be the step you need to take you get back up on your feet and start with a clean slate.

Avoid bankruptcy by taking help from your creditors

When you are genuine facing financial hardship you may find that your creditors are more helpful than you expected. Before you come to the point where you start getting delinquent on your payments or considering filing for bankruptcy, try to communicate with your creditor.

Most of the creditors would like to recover as much of the money they have lent rather than go through the lengthy process of bankruptcy repayment plan where they may or may not get their money back.

In stead of going to court, they may prefer to come up with a repayment plan that will allow you to make pay them back, if not fully then partially. A creditor may be willing to lower your monthly payment or the amount owed in order to ease the burden of your loan.

Many credit card companies and banks also have hardship programs which are intended to help consumers facing problems with repaying their debt. The first step is communicating with the creditor and enquiring if such a program exists.

Before you enter into any hardship program make sure that your payment and interest rate actually go down. It is just possible that you could be stuck with an even higher minimum payments than before.

Credit Karma’s Free Credit Score – 7 Things You Need To Know

Credit karma is a very popular resource for people looking for information on their credit scores. These are a few important things you should now about creditkarma.com and the services that they provide.

What is Credit Karma.com

Creditkarma.com is the only website that allows you to see you credit score for free. This was true at the time of writing this. You do not need to give your credit card details to see you credit score. You will need to give your social security number. This is what Credit Karma uses to access your credit score for the first time. However, this information is not stored with them. They only use it for first time use.

How is Credit Karma different from other free credit score offers

Credit Karma is different from other offers for a free credit score in the sense that the others are only a trial. You are required to provide your credit card information for a trial to some credit related service, the most common of which is credit monitoring. These trials are offered by all major credit bureaus i.e Experian, Equifax, and TransUnion as well as myfico.com. There are several other well known websites that offer these credit score trials as well.

Should you use Credit Karma or other free trails to see your credit score?

This depends on you really. You can use a free trial to see your credit score. However, keep in mind that it might be difficult to get out of trial which will result in getting your credit card getting charged at least for the first month.

However, if you really do intend to use the service for which you are getting a free trial, then this is not a bad idea. Have a look at the various offers on the website of the credit bureaus and myfico.com to see if there is anything that you can use. Their services include Credit monitoring, 3-in-1 credit reports etc.

Credit Karma on the other hand offers completely free credit scores. You will never get charged to view your credit score.

What credit score does Credit Karma provide.

You will probably be well aware of the fact that there are more than one kind of credit scores in use. Each credit bureau has its own scoring model. On top of this your FICO score from different credit bureaus will probably be different from each other as well.

What Credit Karma provides you with is the Vantage Score. Vantage Score is a credit scoring model developed by the 3 main credit bureaus in cooperation with each other. The result is that this particular credit score will be the same no matter where you pull it from. Vantage Score uses your credit report information from Experian, TransUnion and Equifax and combines them to come up with your credit score. This is the reason why the score does not differ no matter where you get it from.

Who uses Vantage Score

The question obviously arise as to who uses Vantage Score for credit approval. According to the information released by the Credit Karma, the top 5 banks use it along with a host of other financial institutions including car insurance. In fact, Credit Karma also offer an automobile insurance score as well.

Why is Credit Karma free

If you are wondering how can CreditKarma be free when everyone else charges you for your credit score, the explanation is this. Credit Karma uses advertisement and endorsements to earn revenue. You will be able to do much more than just see your free vantage credit score on their website. You will also be able to avail a host of other services like compare credit cards and avail special offers from this credit card companies. There might be other credit other credit offers available as well such as car loans, home loans and savings accounts.

This is a logical outshoot of the service that Credit Karma provide. People interested in knowing their credit scores will also be interested in some credit service or the other. By having tie ups with credit card companies and providing offers to consumers is the way that they earn their revenue. For example they show a credit card that a particular consumer might qualify for. If a consumer interacts successful with these offers, Credit Karma earns a commission.

Should you use CreditKarma

Credit Karma definitely seems to be a good place to see your credit score for free. In fact as we have mentioned, it might be the ONLY place. Even if you are not looking for your vantage credit score in particular, any credit score is always a good pointer to your credit health. So before applying for any credit related service, you can use Credit Karma to check your credit health. They also have a lot of tools and information that can be of help. So go ahead and saunter over to creditkarma.com and make the best of it.

Legal Obligations For Employer For Adverse Action Based On Employees Credit Report

If an employer takes any adverse action regarding an employee based on information in his credit file, he has to follow certain legal procedures, which failing to do could result in a lawsuit against the employer by state and national government agencies.

The employer should tell you that he might use the information in your credit report to make a decision regarding your future employment. This notification is separate from other documents like the job application. The employer cannot get a report about you for a common purpose without getting your permission or authorization first which is usually in written.

Pre-adverse action procedures

If the employer uses the information in your credit file or any other background report to take adverse action against you such as denying your employment or promotion or terminating yours employment or reassigning you, he must give you a copy of the report and a document called a summary of your rights under the fair credit report act before taking the adverse action. Read the report and contact the company that issued it if you think it has inaccurate or incomplete information.

You can try explaining the negative information into your employer which might work to your advantage but that will not fix the errors themselves on your credit report. In order to do so you need to contact the credit bureau and file a dispute. If the dispute results in a revelation that the information is indeed incorrect or inaccurate, the credit reporting company has to correct that information and send an updated report to the employer if you ask them to.

You must always make an effort to keep your credit report as accurate as possible. Even if you do not see any benefit in the short term, having an accurate credit report is important for any and all future need and requirement.

Adverse action procedure

If the employer takes an adverse action against you based on the information contained in your credit file, he must inform you already, in writing or electronically about it. The notice must include the name and address and phone number of the credit reporting agency that supplies the credit report or these background information.

The employer must issue a statement that the company that supplied the information didn’t make the decision to take this adverse action and cannot give you any specific reasons for it.

He must provide you with a notice that says you can dispute the accuracy or completeness of any information in your credit report and to get an additional fee report from the company that supplied the credit or other background information if you ask for it within 60 days.

What happens when employers do not comply with the FTC

There can be legal repercussions for employers who do not comply by the guidelines laid down by the FC are. Whether they failed to get written permission from the employee before getting a copy of their credit file or any other background report, failed to provide the appropriate disclosures in a timely way, failed to provide adverse action notice to unsuccessful job applicants, they can be sued by FTC, as well as other federal and agencies and the state. If you think an employer has violated the guidelines laid down by the fair credit reporting act, you can report it to the Federal Trade Commission.

Notice of negative public records

If the credit reporting bureau provides employers with a credit report that has negative information about you gathered from public records such as tax liens, court judgments, bankruptcy filing or criminal conviction, that company either has to tell you that it provided information to the employer or it has to take special steps to make sure that the information is accurate.

If you do get a notice that her company has provided negative public record information to a potential employer you may have the opportunity to correct or clarify it which may help you get the job.

How Can An Employer Access Your Credit Report To Check

An employer has several legal obligations to fulfill when it comes to checking the background of an employee including his credit report.

The one major point regarding an employer accessing your credit report is that he’s each must get permission from you in return before he can contact the credit reporting bureau to access your credit file. If you are worried about the information on your credit is pot and refused to give permission, you may well likely be refused a job. But then again giving access to your credit report to an employer when you know that it has damaging information may still result in the job getting denied due. For this reason it is a good idea to order a free copy of your credit report from each of the credit bureaus before you apply for a job. You may either have a suitable explanation for your empire for any negative information present on it or you may start working on it a bit in advance to fix and repair any mistakes or negative information.

In other to access your free credit report visit http://www.annualcreditreport.com or call 18773228228.

When you order your free Annual Credit Report you will need to verify your identity for providing your name, address, Social Security number, date of birth as well as additional information that only you are supposed to know about such as a loan account number, mortgage payment etc. Keep certain basic financial information handy when you are trying to access your free Annual Credit Report.

You can also fill out the complete Annual Credit Report request form and mail it to the following address to get your credit report through postal mail.

Annual Credit Report request service, P.O. Box 105281, Atlanta, GA 30348 — 5281.

You can access the Annual Credit Report request form from www.FTC.GOV/credit.

There are also some more legal obligations that an employer is supposed to follow. He must show you the credit report and he must tell you how to get your own copy. If you are denied a job, you can access your credit report for free within 60 days.

How Credit Reports Become Part Of Background Check By Employer

Your credit report can very well and most probably be used as a part of background check done by employers when you are looking for a job.

Whenever you apply for a job, the employer is liable to do a check on a background. This background information can include your driving record, criminal record, employment history as well as a credit report. It does not matter how you have applied for the job. You may have applied online or send your resume to by mail.

As long as you have provided the potential employer with your permission to do a background check, he can access your credit report. Your credit report has information regarding your personal details such as where you live along with information about your finances such as how regularly you have paid your bills, whether you have filed for bankruptcy in the past or are there any public judgments against you.

Credit reporting bureaus and other businesses that provide background information to employers regarding potential employees send credit files to employers that use it in turn to evaluate your application for employment. Your credit report can determine whether you get the job, are promoted or reassigned.

Credit reporting agencies not only provide information to employers but to several other businesses as well. Credit reporting businesses have an extremely profitable business where they provide information on your financial background through your credit report. They sell it to other creditors, insurance companies and banks.

The Federal Trade Commission enforces a law called the Fair Credit Reporting Act which protects the privacy and accuracy of information in your credit report. The Fair Credit Reporting Act also speaks about your rights as a job applicant and the employer’s responsibility when using your credit report as a way to assess your job application. This is the same law that entitles you to a free credit report from each of the three national credit bureaus Trans Union, Equifax and experience once every 12 months. This means that in any year you can access three credit reports.

 

How To Prevent Merchants from Blocking Money On Your Credit Card

You can follow the following tips to stop hotels, car rentals and restaurants from blocking your credit card limit in advance.

  • When you check into a hotel or rent a car or if a restaurant or any other merchant asks for your credit card in advance, ask if an amount is being blocked, how the amount is determined and how long the block is meant to remain in place.
  • Try and pay for the hotel bill or the car rental bill with the same credit or debit card that you used at the beginning of transaction. This usually helps in clearing the prior block faster.
  • If you are going to pay them with a different method such as cash, check, remind the person processing of payment to notify the credit card company to remove the block immediately.
  • Speak to your bank or credit card company and find out how long do they maintain a block on your credit limit and from what type of merchants.
  • If you travel frequently or face this kind of a situation often, you may consider getting an overdraft line of credit from them. Inquire about a plan that automatically covers the overdraft. Although you are likely to pay some interest on the amount that you would draw, this amount will not be much if you pay it off quickly. Having an over draft facility is better than being penalized by additional charges for overdrawing on your debit card or going beyond your credit card limit. Get the details from your bank how the line of credit works and how much it costs.
  • Keeping the point of credit card blocking in mind is especially useful when shopping around for new credit or debit card. When comparing various credit card offers, ask the credit card company how they handle blocks. Do they permit it, for how long and from what type of merchants. If you find that this point is indeed important to your credit card usage, you may want to consider a credit card that uses shorter blocks for a less period of time.

What Is Credit Card and Debit Card Limit Blocking

How do hotels and car rentals block your credit card limit in advance.

The most common examples of credit and debit card blocking happen when you either check in at the hotel or rent a car. When you use a credit or debit card to check into a hotel or rent an automobile the person at the counter usually contacts the credit card company to which your credit card belongs and blocks a certain amount on it. In other words, a hold is placed on a certain amount of money. The amount of money that is blocked depends upon the kind of expenditure that you intend to make. For example, when you check into a hotel, the amount of money that is blocked or held on your credit card will depend upon your intended duration of stay. Similarly, for a car rental, the actual rent plus anticipated charges such as incidentals like food, gasoline can add to the blocked amount.

You should understand here that about amount is not exactly charged to your credit card. It is simply withheld from your overall credit limit. This means that if you have a credit card with a credit limit of $3000 and $1000 are blocked when you check into a hotel, your active credit limit from then on will only be $2000. For this reason, blocking a credit card can often surprise people when their credit cards are denied due to insufficient funds in the next transaction. People do not understand that their credit card limit or the balance in their bank account has been blocked for a certain amount previously.

When you finally pay the bill with the same credit card for your hotel bill or for the car rental, the final charge on your credit card or your debit card will replace the block in a day or two. However, if you pay the bill using a different credit card or using another method such as cash or travelers checks, your credit card company may take much longer to remove the block. It is not uncommon for funds to be blocked for up to 15 days after you have made the final payment. This happens because the credit card company does not get notified of the final payment and is not aware that you have paid the final build using other means.

Why credit and debit card blocking can be a problem

A block is put on the credit card in order to ensure that you have enough credits to match remaining on your card to meet the final bill. It is a way that the merchant uses to ensure that you will be able to meet the final expense by estimating the expense beforehand and blocking it. Otherwise, the hotel or rental agency might find that your credit is not sufficient to cover the bill leaving the merchant unpaid. Credit and debit card blocking can also be used sometimes for restaurants for anticipated sizable bills for large groups and dinner parties. Once again this is done to ensure that enough account money or credit will be available to to complete the payment at the end.

If you are not close to your credit limit, the amount being blocked but probably not cause a problem. However, if you have already utilized much of the credit limit on your card, you might have your card declined which can be embarrassing and inconvenient. Blocking off a certain amount can also lead to a shortage of available funds for an emergency purchase or need. The debit cards of course depend upon the balance in your bank account and a block on the debit card will result in the funds in your bank account being held. Blocking in this case could lead to charges for insufficient funds while the block remains in place.

 

What Federal Benefits Are Exempt from Garnishment By Creditors

Your rights in protecting federal benefits in your bank account against garnishments

When you are unable to pay back a debt to a creditor, he may sue you in a court of law and get the order that your wages or the money in your bank account be garnished to pay back the debt. When this happens, the bank freezes the amount of money in your account and you are not able to access it. If you cannot subsequently reverse the garnishment order from the court, these funds are used to pay back the creditor. You should understand that typically any federal benefits that you receive such as Social Security amount, unemployment benefits etc. are exempt from garnishment. You can usually prevent these amounts from being garnished and used to pay back the creditors although you may have to go to court and get the order from the judge in order to do so.

The federal benefits that are ordinarily exempt from punishment are as follows. The Federal Trade Commission which is the nation’s consumer protection agency gives out the following list of federal benefits that are exempt from garnishment.

  1. Social Security benefits
  2. Supplemental security income benefits
  3. Veterans benefits
  4. Civil service and federal retirement and disability benefits
  5. Military military amenities and survivors benefits
  6. Student assistance
  7. Railroad retirement benefits
  8. Merchant seaman wages
  9. Longshoremen’s and harbor workers death and disability benefits
  10. Foreign service retirement and disability benefits
  11. Compensation for injury, death, or detention of employees of US contractors outside the US
  12. Federal emergency management agency federal disaster assistance.

However, there are certain cases in which even these funds which are typically protected against garnishment may be used to pay off your certain debts and other financial obligations. For example, these federal benefits may be used to pay unpaid federal or state tax. They may also be used to pay a student loan. Your Social Security benefits may be used to make payments on child-support or alimony.

The law governing the federal benefits and the provision for its garnishment differs from one state to another. For complete information and better management of a situation such as this, you should consult an attorney who practices in your state. You can also get additional information from local consumer protection agencies or a legal aid office in your area.

What To Do When A Creditor Tries to Garnish Your Bank Account

How A Creditor Can Garnish Bank Account Funds To Recover a Debt

A creditor can sue you in a court of law for unpaid debt. It can ask the court to issue an order that garnishes your bank account. A court order for garnishment means that the amount in your bank account is frozen until the time that the court decides with a final decision as to whether the money must be paid to the creditor. In certain states, there is a provision and a law that states that you are to be notified when judge issues a garnishment order for the money in your bank account. This notice also tells you what to do if you think that some of the money in your account is exempt from garnishment. However, sometimes you will not receive this notice when the judge issues order and the bank freezes you account.

What to do when you receive a notice of garnishment

If you believe that your account contains money and funds that are exempt from punishment such as federal benefits like Social Security benefits, unemployment benefits, veterans benefits etc., the first step that you should take is to get in touch with a competent attorney. It is also very important to follow the instructions and the deadlines mentioned in the notice for telling the judge that your money in your account is exempt from garnishment. You may inform the bank immediately that the money in your account is exempt and for what reasons. You can ask the bank to lift the freeze on your account immediately. However, under most circumstances, you will have to go to court and present suitable evidence to the judge such as receipt for federal benefits in order to have the order for garnishment revoked before the bank can once again unfreeze the funds in your account. Till then, the bank will keep the account and the funds frozen after receiving a garnishment order which will prevent you from accessing those funds.

Step to take when your bank account is frozen due to a garnishment order.

As already mentioned, the first step to take is to contact an attorney and take his legal counsel. If the bank freezes your account, this restricts you or anyone else from getting money out of your account. This means that any checks you wrote or any authorized electronic payments that have not been cleared yet may be returned unpaid. Your bank can also charge you a fee for having insufficient funds in your account when these payments bounce.

Therefore it can be important to immediately make arrangements to prevent outstanding checks from bouncing and to inform the people you have made the payments to that you are resolving a problem with the bank and they are not to present the check you have signed and given to them till you inform them further.

Steps to take to get the judge to prohibit creditors from obtaining exempt funds in your bank card

In order to convince the judge that the funds in your bank account are exempt under federal law, you and your attorney will need to get a hearing before the judge and present suitable documentation and proof showing that your bank account funds are exempt. We have already mentioned the commonly exempt funds such as Social Security benefits, unemployment benefit, veterans benefit etc. If the federal government provided your benefits through electronic deposit you should summit the proof showing these deposits and the source. If you received checks from the federal government which are deposited in your bank account you should submit bank deposit slips, statement from the agency that is the source of the exempt funds, bank account statement or other documents proving the same. Basically if you can show the judge that your bank account contains funds exempt under the federal law, the judge will not allow the creditor to obtain these funds to pay the judgment against you or to collect them as other fees and charges.

At this point you should also remember that certain kinds of debt obligations can be repaid using the exempt funds in your account such as child support and alimony.

If your bank has not already done so, you should show the order of the judge saying that the freeze on exempt funds should be lifted to the bank. You should also ask your bank to waive or refund any NSF or other fees resulting from the temporary freeze on your account.