To open a bank account that no creditor can touch, you can set up an exempt bank account, maintain a wage or government benefits account, open an offshore bank account, or get one in a state that prohibits garnishments.
So you’ve worked tirelessly to build up your savings, only to wake up one day and find that a creditor has swooped in and taken everything.
It’s a terrifying thought, but for many people, it’s a harsh reality.
If you’re here, it’s likely because you’re worried about protecting your hard-earned money from creditors who might come knocking.
Whether you’ve already experienced the stress of a frozen account or are trying to prepare for potential legal battles, this guide is here to help you navigate the complexities of opening a bank account that no creditor can touch, ensuring your financial safety in turbulent times.
What is Bank Account Garnishment?
Bank account garnishment is when a creditor, through a court order, seizes funds directly from your bank account. This usually happens after the creditor has won a lawsuit against you. Once the judgment is in place, they can legally hold your bank account and withdraw the specific amount owed from your account.
This process often happens without warning, leaving you little time to react. Once the bank gets the garnishment order, they must act quickly, typically garnishing your account within one to two weeks. This gives you very little time to protect your money, making it crucial to have a plan in place to protect your funds before it reaches this point.
What Type of Bank Account Cannot Be Garnished?
Certain bank accounts are protected by federal and state laws. These protections apply to accounts that receive funds from sources like Social Security benefits, veterans’ benefits, or federal student loans. Additionally, joint bank accounts, especially those held by married couples in some states, may also be protected if they meet specific legal requirements.
💡Note: However, these protections aren’t guaranteed in every situation. For example, if both you and your spouse owe money to the same creditor, even a joint account could be vulnerable.
How to Open a Bank Account That No Creditor Can Touch
Some bank accounts are safe from creditors, like exempt bank accounts, wage or government benefits accounts, offshore accounts, and accounts in states that don’t allow garnishments. If you want to protect your money from creditors, here’s what you can do:
1. Open an exempt bank account.
An exempt bank account contains funds protected by law, meaning creditors can’t use them to pay off a debt. Each state has its own rules about what kinds of funds are exempt.
For example, if you live in Florida and you and your spouse have a joint account as “tenants by the entirety,” that account is generally safe from creditors going after either of you individually. These accounts are meant to protect specific funds like wages, retirement savings, and money from selling your home.
💡Note: Not all banks automatically offer this type of account, so you’ll need to find one that does and makes it clear on your account statements that your money is protected.
Here’s how to open an exempt bank account:
- Check your state’s rules: Look up what types of accounts and money are protected from creditors in your state.
- Choose the right bank: Pick a bank that offers exempt accounts and can show proof that your account is protected on your statements.
- Set up the account correctly: Tell the bank exactly what type of exempt account you need. For example, if you’re opening a “tenants by the entirety” account with your spouse, make sure the bank knows this and sets it up the right way.
- Keep the money separate: Only put exempt funds into this account. Don’t mix in other money, because that could make it harder to prove the funds are protected.
2. Maintain a wage or government benefits account.
Certain accounts, like those that receive wages or government benefits, also offer protection from creditors. In states like Florida, if you’re the head of the household, your wages might be protected from garnishment. Additionally, federal benefits like Social Security or disability payments are generally off-limits to creditors.
💡Pro Tip: To keep this money protected, it’s best to set up a separate account just for these payments. Don’t mix this money with other funds that aren’t protected—it could make things messy and harder to prove that this money should be safe from creditors. By keeping a dedicated account, you help ensure these important funds stay protected.
3. Set up an offshore bank account.
Offshore bank accounts give you extra protection for your money. These accounts are located outside the U.S., often in places like the Cook Islands, Nevis, and the Cayman Islands, where the laws are strong in keeping your assets safe. One big advantage of an offshore account is that it’s much harder for U.S. creditors to get to your money. Since U.S. courts don’t have control over foreign banks, it’s tough for creditors to take money from these accounts.
However, opening an offshore account isn’t as simple as opening one in the U.S. You’ll have to deal with different laws, and it can be pricey to set up and keep the account running.
A smart move is to pair your offshore bank account with an offshore trust or Limited Liability Company (LLC). This way, the trust or LLC—not you—owns the account, making it even harder for creditors to get to your money. Plus, the account is managed by someone in the offshore location, adding another layer of security.
To increase your chances of getting approved for an offshore account, it’s essential to build a strong credit history. Cushion can help with that by turning your regular bill payments into credit-building opportunities, making it easier for you to meet the requirements for opening an offshore account.
4. Open a bank account in a state that prohibits garnishments.
Another strategy is to open a bank account in a state where garnishments are either restricted or not allowed at all. Some states have laws that protect bank accounts from being garnished by creditors. This means your money will be safer from creditors if it’s held in a bank located in one of these states.
You don’t have to live in the state where the bank is located to open an account there, although finding a bank that accepts out-of-state customers might take a bit more work. Once you have an account in a state with these protections, your money remains accessible for your daily needs but is better shielded from creditors.
💡Note: Before choosing this option, make sure to research if the bank truly offers this protection and check if there are any specific rules you need to follow.
Once your account is open, use it carefully. Don’t do anything that might look like you’re trying to hide money. It’s a good idea to talk to legal experts regularly to make sure you’re following all the laws. This way, you can keep the protections you’ve set up and avoid any legal trouble.
What to Do When Your Bank Account Is Garnished
If your bank account is garnished, there are still steps you can take to mitigate the damage:
- Seek legal advice immediately: Contact a lawyer specializing in asset protection or debt collection defense as soon as you receive notice of garnishment. They can help you understand your rights and explore options to challenge the garnishment.
- Dispute incorrect information: If you get a notice saying your account is being garnished and you think it’s a mistake or you don’t owe the debt, you can dispute it. The time you have to file a dispute depends on your state, so make sure to do your research. For example, in Kansas, you have 14 days from when you get the notice to file a dispute. Meanwhile, in California, you have 15 to 20 days to dispute.
- File an exemption claim: In some cases, you may be able to claim exemptions for certain funds, such as Social Security benefits or retirement savings, that should not be subject to garnishment. Filing an exemption claim can temporarily protect these funds from being seized.
- Negotiate with creditors: Sometimes, creditors are willing to negotiate a payment plan or settlement that is less burdensome than a full garnishment. If you can reach an agreement, you may be able to stop the garnishment process altogether.
- Consider bankruptcy: While bankruptcy is a last resort, it can stop garnishment actions and give you a fresh start. However, this option should be carefully considered and discussed with a qualified attorney.
Other Ways You Can Protect Your Money from Creditors
Beyond opening a secure bank account, consider these additional strategies to protect your assets:
Utilize exemptions
Make the most of federal and state exemptions that protect certain types of income and accounts. Understanding and utilizing these exemptions can provide a significant safeguard against creditors.
Diversify your assets
Spread your assets across different types of accounts, investments, and jurisdictions. By not having all your money in one place, you reduce the risk of losing everything to a single creditor claim.
Set up irrevocable trusts
An irrevocable trust transfers the ownership of your assets to the trust itself, removing them from your ownership and thereby shielding them from creditors. These trusts can be complex, so it’s important to work with an experienced estate planning attorney.
Keep debt under control
While this may seem obvious, the best way to protect your assets is to avoid excessive debt in the first place. Regularly review your financial obligations and take steps to manage or reduce debt whenever possible. Cushion can help you stay on track by ensuring your bills are paid on time.
Bottom Line
Protecting your assets from creditors isn’t just about opening the right bank account—it’s about having a comprehensive strategy that includes asset protection plans, legal structures, and smart financial management.
By understanding how garnishment works and taking proactive steps, you can safeguard your hard-earned money from unexpected legal threats.
Whether through offshore accounts, trusts, or careful financial planning, ensuring your financial security is within your control.
Start today, and rest easy knowing your assets are protected.
