Notification of a lawsuit usually comes in the mail, causing serious concern about your assets. However, there’s no need to overreact, because a lawsuit doesn’t put your checking account in danger.
An experienced attorney will tell you that creditors can’t freeze your accounts just because you’re named in a lawsuit. In fact, they will explain what actually happens when a lawsuit is filed, and when your assets might be at risk.
How Your Assets and Accounts May Become Legally Frozen
Starting with a creditor’s lawsuit, which you learn about through a summons, can result in your accounts being frozen. Here are the steps that may lead to that situation and what you can do about it:
- A creditor sues you and you receive a summons
- The case proceeds. You can contest it, negotiate, or default (not show up)
- If the creditor wins the suit, the court may enter a financial judgment against you
- The judgment allows the creditor to pursue your bank account through a process Illinois calls non-wage garnishment (in other states it may be called a bank levy or attachment)
- In Cook County and potentially other parts of Illinois, you and the bank receive a Citation to Discover Assets, which is a court hearing to disclose your financial assets and during which you may potentially claim exemptions
- The bank must freeze the funds in your account up to the judgment amount immediately (note: there is an automatic $1,000 exemption)
- The hearing is the last chance to dispute the bank action before any funds are seized by the creditor. It is critical to understand and claim as many exemptions as possible to preserve your freedom to use your money as needed.
- An emergency motion may be submitted to the court requesting access to frozen funds for essential expenses like rent or payroll
Funds That are Automatically Protected in Illinois
As an Illinois resident, the debtor has an automatic $1,000 exemption, meaning that a creditor with a judgment may not take every penny from the debtor’s bank account. The debtor must present evidence at the court hearing (such as financial documents) to claim the remaining $3,000 of the allotted wildcard exemptions.
Other Exemptions, Funds That Are at Lower Risk
Portions of your income may be automatically exempted, regardless of the wildcard amount. These include:
- Social Security income, pensions, and most retirement funds such as 401(k) and IRA funds
- Disability payments and life insurance policy proceeds
- If you receive Social Security or other federal benefits by direct deposit, federal regulations generally protect two months’ of those benefits from garnishment, regardless of where the rest of the account balance originated (the bank reviews recent deposit information). However, if you transfer those benefits into a different account after receiving them or make a deposit by physical check, the automatic protection may not apply and the exemption must be actively claimed in court
When an Account Co-Owner is Involved
You may be a joint account holder with a spouse or another person who was not named in the original lawsuit. That doesn’t mean your funds won’t be garnished. These are the circumstances under which your funds may be taken by a creditor with a judgment:
- If you are sued and the court awards a creditor a judgment against you, any bank account that your name is on is at risk, although the account co-owner can contest the freeze.
- Account co-owners (called “adverse claimants”) are entitled to notice and a hearing where they can provide proof that the funds belong to them rather than the judgment debtor
Exercising All of Your Options Against a Judgment
By missing a court deadline you may give up your rights to claim exemptions and keep some or all of your money. Find out what other ways you may preserve your earnings through a consultation with an experienced attorney from Legacy & Life Law Firm. Call for an appointment today.