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Defending Bank Garnishment Litigation Filed Against Banks and other Financial Institutions

Expert Witness: Don Coker
The author, renowned nationwide banking expert witness Don Coker, explains some important issues and banking industry standard policies, procedures, and practices that impact bank garnishment litigation.

There are many misconceptions surrounding the simple act of a bank being ordered by a court to freeze and garnish a bank account (or accounts). This article explains what should happen and who is responsible for what in a standard garnishment situation.

First, understand that there are two types of garnishment: (1) Garnishment of a debtor’s paycheck at the employment source that issues the paycheck, and (2) Garnishment of a bank account. This article deals with the garnishment of a bank account.

Banks view garnishments as a two-edged sword:

● Banks like that a garnishment spares the bank
from getting thrust into the middle of a squabble between two parties claiming the same funds in a bank account.

● Banks hate that a garnishment almost always ends with the bank sending funds out the door.

● Banks also hate that when someone loses their funds through a garnishment, no matter what the reason, they often want to sue someone; and they mistakenly see the bank as the culprit that took their funds, even though the bank was only following the order of a court.

Typically, the garnishment process unfolds like this:

1. A debtor defaults on a debt.

2. The creditor to whom the debt is owed sues the debtor.

3. The creditor wins and a judgment is placed against the debtor.

4. The creditor files a court action to take the specific amount of funds that are owed from the creditor’s bank account (or accounts), i.e., garnish the account(s), at a specific bank. (Note that the creditor must know where the debtor has a bank account.)

5. The court sends to the bank a document that goes by different names but may be called a summons of garnishment, notice of garnishment, or something similar.

6. In compliance with the summons or notice of garnishment, the bank is ordered to take action to prevent the creditor, i.e., the bank’s customer, from removing funds from the account, or accounts, that are being garnished. The bank may freeze the account to any further activity and access by the owner of the account, move the amount of garnished funds to a suspense account, or simply place a hold on the funds. (Note that a hold is generally used on time savings deposits such as certificates of deposit since moving them to a suspense account would make it difficult for the bank’s computer to keep accruing interest on the account.)

7. In order to cover the amount stated in the summons of garnishment, the bank may be required to freeze or hold more than one account.

8. Due to the additional manpower and individual handling that are required for a bank to handle garnishments, state laws as well as industry standard practice allow banks to charge a fee for this work, usually in a range from $75 to $150. The unacceptable alternative would be for the bank to increase the service charges for everyone with an account at the bank in order to reimburse the bank for the cost of processing the garnishments for the account holders that were being garnished.

9. Banks place the account freezes or holds and then notify the account holder, the same day or within a couple of days, that they should contact either the creditor, an attorney, or the court if they plan to contest the garnishment. This usually involves filing what lawyers call a traverse. Part of this process includes the account holder’s responsibility for notifying the court if any of the funds in the accounts are exempt from garnishment. (See explanation below.)

10. The summons of garnishment will state a date range during which the bank will have to forward the garnished funds to the court, usually thirty to forty-five days or so from receipt of the summons. By the end of this summons period, the bank must transmit the amount of garnished funds to the court, or else the bank gets into trouble with the court for failing to follow its order.

Overdrawing an Account

If the situation is that the garnishment amount takes up all of the funds in the account(s), and then the bank applies its fee for processing the garnishment, then the garnished account becomes overdrawn; and the bank is entitled to charge its standard overdraft fee.

Exempt Funds

Several types of funds are exempt from garnishment based upon either federal or state laws. For example, Social Security payments, Supplemental Security Income, Veteran’s Benefits, federal program retirement benefits, and railroad retirement benefits are all protected by federal law from garnishment. Various state laws protect other funds such as funds in retirement accounts and a portion of wages that are being garnished at their source, i.e., the employer.

Social Security sometimes requires a person that is receiving Social Security benefits to receive them through a Representative Payee. In this case, the fund should be placed in a representative payee account or other account where the beneficiary cannot have access to the funds; but the funds are protected from a garnishment action against the Representative Payee.

A Social Security check or other check for exempt funds that is cashed and then placed into a bank account lose their exempt status. When a check is cashed, it becomes money which is a fungible asset and is no longer exempt from garnishment.

An attorney’s trust account, or IOLTA account, generally is not garnishable.

Funds that are formally being held by one person in trust for another person cannot be garnished for a debt of the person holding the funds in trust.

States usually have their own exemptions that apply as well as the federal exemptions stated earlier. For example, in Georgia, retirement funds and a portion of a person’s paycheck are exempt. Presumably, a bank easily would be able to detect funds that were held in a retirement account by the account number that would identify the account as a retirement account.

Accounts that receive exempt funds as well as non-exempt funds are always problematic for a court that has to decide which funds are truly exempt. However, this is the court’s decision and not the bank’s.

Joint Accounts

Funds held in a joint account are subject to being garnished to cover the debts of any of the joint account holders, regardless of who placed the money into the account.

Industry Standard Banking Practices for Handling Garnishments

● A bank’s responsibility and duty to their customer whose account is being garnished is to notify the customer in a timely manner so that the customer can contact the creditor, an attorney, or the court and take whatever action they feel appropriate to mitigate their loss. One of the issues that the account holder should tell creditor, the attorney, or the court is if they feel that some or all of the funds are exempt from garnishment. If the account holder fails to act to protect themselves in this situation, then they must bear the blame for whatever happens to their funds since they have failed to act to mitigate their financial damages.

● A summons of garnishment may be served at a branch and then faxed or otherwise transmitted to the home office for centralized handling. Usually they are not processed and handled at the branch level but rather are handled in a centralized office where the employees are trained in the specialized matters relative to garnishments.

● When a bank follows a court order and freezes or places a hold on accounts and then sends the garnished funds amount to the court, that is not conversion, which should be especially obvious when you realize that the bank does not possess the garnished funds. The bank is not taking the garnished funds for itself, so they are not being converted by the bank. The bank is only following a court order and sending the funds to the court.


Banks are always in a precarious situation when they have to handle garnishments. My extensive experience has been that banks have built up a long experience base handling repetitive garnishment transactions, and that it is more likely than not that they have handled a garnishment situation properly, and cannot be blamed for their customer’s loss.

ABOUT THE AUTHOR: Banking Expert Witness Don Coker
Expert witness and consulting services. Over 500 cases for plaintiffs & defendants nationwide, 120 testimonies, 12 courthouse settlements, all areas of banking and finance. Listed in the databases of recommended expert witnesses of both DRI and AAJ.

Clients have included numerous individuals, over 75 banks, and governmental clients such as the IRS, FDIC. Employment experience includes Citicorp, Ford Credit, and entities that are now JPMorgan Chase Bank, BofA, Regions Financial, and a two-year term as a high-level governmental banking regulator.

BA degree from the University of Alabama. Postgraduate and executive education work at Alabama, the University of Houston, SMU, Spring Hill College, and the Harvard Business School.

Called on by clients in 31 countries for work involving 61 countries. Widely published, often called on by the media.

Copyright Don Coker

Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.For specific technical or legal advice on the information provided and related topics, please contact the author.

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