What happens if you switch banks after a levy or garnishment order?

Rising credit card debt levels and high borrowing costs are adding a lot of extra pressure to borrowers' finances right now, and it's causing some big issues in terms of unpaid and overdue debt. With credit card APRs still hovering above 21% and payment delinquency rates climbing, more borrowers have been finding themselves falling further behind and are now on the receiving end of aggressive collection tactics. For some, that escalation leads to being sued over their unpaid debt.

If you're sued over delinquent debt and the creditor secures a court judgment against you, they gain access to a set of powerful collection tools, which could give them the ability to go straight to the source of your money via a wage garnishment or bank levy. If that happens, the impulse may be to act fast to try to mitigate the fallout. After all, if you're watching funds disappear from your account, the instinct may be to move your money somewhere safer. 

Before you transfer your direct deposit to a new institution or close out your existing account, though, it's worth understanding what could happen if you make that move.

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What happens if you switch banks after a levy or garnishment order?

Switching banks after a levy or garnishment order has been issued will not make it go away. The court order authorizing the levy is tied to you, not to a specific account number or financial institution. 

Here's how it typically plays out: If you switch banks, the creditor who has already levied your bank account can simply issue a new levy to your new bank and then freeze that account. To do that, they generally just need to know where your money is. That may sound difficult in practice, but creditors and their attorneys have several ways to find out. 

For example, they can send post-judgment discovery requests that formally demand that you disclose your financial accounts under oath. They can also subpoena records from employers, which often reveal where your paycheck is being deposited. In some states, they can use information databases or conduct debtor examinations, where you're required to appear and answer questions about your assets under oath.

Wage garnishments function differently from bank levies but carry a similar process. A wage garnishment order is served on your employer, not your bank, so moving your direct deposit to a new account doesn't stop the withholding. The money is taken before it ever reaches you. There are important limits, though. 

Federal law caps wage garnishment at 25% of your disposable earnings or the amount by which your weekly earnings exceed 30 times the federal minimum wage, whichever is less. Certain funds are also exempt from bank levies in most states, including Social Security benefits, SSI payments, veterans' benefits and federal student loan disbursements. If exempt funds have been levied, you have legal grounds to challenge the seizure.

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Moving banks could buy you time, but here's what actually helps

Switching banks is not an effective long-term solution, but it's also not the only option available to people facing wage garnishment or bank levies. Addressing the underlying debt is a more durable path, and there are several ways to do it, including:

• Settlement negotiations: Creditors who have gone through the trouble of obtaining a judgment still want a resolution, and many will accept a lump-sum settlement for less than the full balance, or agree to a structured payment plan that stops collection activity while you pay down the debt. 
• A bankruptcy filing: Filing for Chapter 7 or Chapter 13 bankruptcy triggers an automatic stay, which immediately pauses most collection activity, including wage garnishments and bank levies. Chapter 7 can discharge unsecured debts entirely, while Chapter 13 restructures what you owe into a repayment plan. It's a significant step to take, but for people facing repeated garnishments with no realistic path to repayment, it can be the most effective form of protection available.
• Working with a debt relief professional: The experts at a debt relief company or credit counseling agency can help you evaluate your options, understand which of your assets may be exempt under state law and develop a strategy to get rid of your debt and help stop the process or prevent future garnishment and levy issues.

The bottom line

A garnishment or levy order is a legal instrument and no bank transfer erases it. Creditors have the tools to find your new accounts and restart collection, so rather than running from the judgment, the more effective move is confronting it directly. And, luckily, you have quite a few options to do so, whether it's through negotiation, legal exemptions, or, in serious cases, bankruptcy protection.