Loan Articles

A “garnishment” is a court order involving three parties that aims at recovering money owed by one person through collecting what someone else owes him or her. Simply put, if you owe someone and another person owes you, your creditor can seek to receive the payments owed to you to compensate for what you owe. This means that instead of paying you, the person (who owes you) would pay the person you owe (through the court).

The person who owes you is therefore referred to as the “garnishee”. This can be an individual, a company (like your place of employment) or a financial institution like your bank, while the creditor can be a person or a lending institution like your credit card company. There are two types of garnishments: one that collects or attaches money, this means that at the time it was served the amount was still owing and the other does not collect or attach money, this means that by the time it was served the amount owing was already paid.

If your account is to be garnished, your creditor will have to be able to establish exactly how much you owe (this is referred to as a “liquidated claim”) then start a lawsuit against you for that amount, note that a garnishment can only be sought if the creditor can pinpoint the exact amount owed. Once the lawsuit is filed a request can be made for a “garnishing order” to receive payments from your financial institution or bank, as well as employer. The money going to the account is therefore “garnished” or intercepted once the judgment is granted to your creditor.

What this means is that the amount going to your bank account will be affected by the judgment because the creditors portion will be accounted for before you can access anything, although, the creditor may not get the money right away. This is so because a garnishing order can be granted even before you are served with the official documents for the lawsuit or prior to a judgment against you being passed. In this case, the money taken is not sent immediately to your creditor but held by the court until the creditor follows up on the case or receives a favourable judgment (that is, one against you).

This gives you time to defend your case if you disagree either with the amount being sought or the lawsuit in general. If you win, proving that you owe less than is being sought, the overdrawn portion is returned to you. If you lose, the money becomes the creditor’s property.

When bank accounts become garnished, not only does it automatically affect your spending power, it also creates credit issues because this remains a part of your credit history. All garnishing orders have the ability to negatively affect future business with potential creditors even in cases where the order had no money attached. The process can also be an embarrassing one and since under the Fraudulent Conveyance Act there are legal implications for switching banks to delay or avoid creditors, it is also not one that can easily be avoided.