Creditors give borrowers several options to make payments on loans. Most credit obligations can be paid by a check, money order, cashier’s check or an electronic bank transfer. Creditors prefer that payments are made electronically from a bank account. They want ensure that they receive payments on time. An electronic transfer allows them to withdraw the funds on the payment due date. Before a creditor can take any money from your account, you must sign an authorization allowing them to do so. However, there are several situations when a creditor can legally take the funds out of your account without your authorization.
When you default on a loan, a creditor can take a number of steps to collect the money you owe. He will attempt to contact you first to make payment arrangements. When unable to reach you, the creditor may forward your account to a collector. If all attempts to collect the debt fail, the financial institution has a right to file a lawsuit against you to obtain a judgment that allows it to take money from your bank account or your paycheck to repay the outstanding balance on your loan. A creditor can take the money in your account upon receiving the writ of garnishment. He cannot close your bank account or leave your account negative by taking more than the available balance.
Before taking the funds, the creditor submits the judgment documents to the bank that holds your checking or savings accounts. The bank is obligated to freeze the funds and notify the account holders. Some types of income are exempt from garnishment. If you receive Social Security, public assistance, pension, unemployment or child support, you can ask for these funds to be released by filing the exempt papers. By law, these funds cannot be taken to repay any debt.
If your checking or savings account is at the same bank where your loan is, the bank has the right to take the funds for the past-due payments. It does not need to obtain a court judgment to do so. It cannot take more than what’s past-due on your loan. If you believe that a creditor wrongfully took the money out of your account, contact an attorney who can advise you on the legal steps to take.