Prepaid Debit Card and Debt Collections

Can a creditor seize or garnish my prepaid debit card?

Can a prepaid Mastercard debit card from Netspend (Meta Bank)be seized or garnished by creditors ?

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Bill's Answer
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Highlights


  • Review your rights under the Fair Debt Collections Practices Act.
  • Understand that a creditors ability to garnish your wages varies from state to state.
  • Always respond to a summons you receive.

The answer to your question hinges on the answers to two questions: 1) Does the creditor know this account exists in your name? 2) Does NetSpend have your Social Security number linked to your name on your account?

If the creditor is unaware of the existence of the account in question, then it will not garnish or levy the account. Customarily, a debtor will be required by court order to disclose the name of his or her financial institutions and account numbers.

It is possible for IRS to discover accounts associated with a Social Security number, but that searching ability is unavailable to private creditors, to my knowledge. Therefore, if you were required to provide your Social Security number when you opened your netSpend account it is theoretically possible for some creditors to locate that account.

It is important for you to understand your state laws are regarding consumer protection. Below, I discuss how the collection process works and the traditional methods which a creditor utilizes to collect a debt. I also provide you with the Bills.com resource page that explains what the consumer protection laws are for each state.

When a debtor stops paying on a debt, a creditor will attempt to contact the debtor on the telephone and via the mail. When the number of days since the most recent payment reaches 120-180 days, the account is no longer considered current and the creditor is required by generally accepted accounting principles to "write-off" the debt. Writing-off a debt does not mean the debtor is no longer responsible for the debt, or that collection efforts cease.

The write-off date has almost nothing to do with the statute of limitations for debts. To learn more about the distinction between these issues, read .

At the write-off point, the creditor will transfer the debt to a late-accounts department, or has the option to sell the debt to a collection agent. The collection agent will buy the debt at a discount. However, the collection agent has the right to collect the entire balance due plus interest.

A collection agent may use aggressive tactics to when contacting the debtor. The collection agent may threaten to call the debtor's employer, file charges with the local sheriff, or say they will park a truck in front of the debtor's house with a sign that reads "Bad Debt" on it. All of these tactics and many others are illegal under the (FDCPA). Start here to learn the under the FDCPA.

A creditor -- a debt collector that owns a debt account is a creditor -- has several legal means of collecting a debt. But before the creditor can start, the creditor must go to court to receive a judgment. A court (or in some states, a law firm for the plaintiff) is required to notify the debtor of the time and place of the hearing.

This notice is called a "summons to appear" or a "summons and complaint." In some jurisdictions, a process server will present the summons personally. In others the sheriff's deputy will pay a visit with the summons, and in others the notice will appear in the mail. Each jurisdiction has different civil procedure rules regarding proper service of notice. (See to learn more about this process.)

If you ever receive a summons you should do as it instructs! This is not just a social invitation that you can ignore. In the hearing, the judge will decide if the creditor should be allowed to collect the debt. If the debtor fails to appear, the judge has no choice but to decide on behalf of the creditor.

Therefore, if you receive a summons, the first thing you should do is contact the law firm representing the creditor. Open a negotiation to see if they are willing to settle the debt. If not, it would be wise to respond as indicated in the summons. If there is a hearing, attend it and present your side of the story to the judge. Use facts, tell the truth, dress appropriately, and show the court respect. The court may or may not decide in your favor, but at least you exercised your right to be heard.

The court may decide to grant a judgment to the creditor. A judgment is a declaration by a court that the creditor has the legal right to demand a wage garnishment, a levy on the debtor's bank accounts, and a lien on the debtor's property. Which of these tools the creditor will use depends on the circumstances. We discuss each of these remedies below.

Wage Garnishment

The most common method used by judgment creditors to enforce judgments is wage garnishment, in which a judgment creditor would contact the debtor's employer and require the employer to deduct a certain portion of the debtor's wages each pay period and send the money to the creditor. However, several states, including Texas, Pennsylvania, North Carolina, and South Carolina, do not allow wage garnishment for the enforcement of most judgments. In several other states, such as New Hampshire, wage garnishment is not the "preferred" method of judgment enforcement because, while possible, it is a tedious and time consuming process for creditors. In most states, creditors are allowed to garnish between 10% and 25% of your wages, with the percentage allowed being determined by each state. See to learn more about wage garnishment.

Levy Bank Accounts

A levy means that the creditor has the right to take whatever money in a debtor's account and apply the funds to the balance of the judgment. Again, the procedure for levying bank accounts, as well as what amount, if any, a debtor can claim as exempt from the levy, is governed by state law. Many states exempt certain amounts and certain types of funds from bank levies, so a debtor should review his or her state's laws to find if a bank account can be levied. See the Bills.com resource for an overview of each state's rules.

Lien

A lien is an encumbrance -- a claim -- on a property. For example, if the debtor owns a home, a creditor with a judgment has the right to place a lien on the home, meaning that if the debtor sells or refinance the home, the debtor will be required to pay the judgment out of the proceeds of the sale or refinance. If the amount of the judgment is more than the amount of equity in your home, then the lien may prevent the debtor from selling or refinancing until the debtor can pay off the judgment. Again, every state has its own rules about property liens, so debtors with a judgment against them who own property should review their state's laws to learn creditor can and cannot do to enforce its judgment. See the Bills.com resource for an overview of each state's rules. See the Bills.com article to learn more.

Debt Resolution

If you have a judgment against you, consult with an attorney licensed in your jurisdiction to learn how the judgment will affect you, based on your individual financial circumstances and your local rules.

It is not too late to contact the creditor or the law firm that either represented the creditor or bought the debt, and present them a settlement offer. Even with a judgment in place, the law firm must spend money to try to collect the debt. Getting a wage garnishment, levy, or lien takes time, and time to a law firm is money. The law firm may settle for a lump-sum payment. See "" before opening negotiations with a creditor. See "" to learn more about your rights and options for resolving the debt.

Important! Get all settlement offers in writing before sending a check to the law firm or collection agent.

I hope this information helps you Find. Learn & Save.

Best,

Bill

5 Comments

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  • RO
    Jul, 2012
    Rhonda
    I live in North Carolina. I had a lawyer from New York contact me about a credit card debt. He threatened me with judgements and bank levies. But from researching this it seems he is wasting his time. It has been over 4 yrs since I paid on this. My only income is Social Security SSI. Section 207 of the Social Security Act (42 U.S.C. 407) states no funds from Social Security directly or after being direct-deposited can be levied. Is this true for North Carolina?
    0 Votes

    • BA
      Jul, 2012
      Bill
      The law cited is federal and applies to residents in all states.

      The Dept. of Education, IRS, and other federal agencies may garnish (called "off-set") Social Security benefits for delinquent federal loans or IRS debt. Creditors may not touch Social Security benefits, which the law cited explains, with notable exceptions, such as child support.

      If your only source of income is Social Security, and your account contains only funds from Social Security, then the contents of your account may not be levied under federal law. However, if you intermingle funds in your account, let's say you received a gift or sold something online and were paid into that account, the account becomes fair game for levy.
      0 Votes

  • DH
    Aug, 2011
    debbie
    Or as in my case. My son's high school in Indiana took me to court over unpaid school fees. I was never notified as I now live in central Illinois. A judgment was entered and then a warrant for my arrest. I was arrested last month. Paid a $500 bond to get out. Then my court date was switched. Again without my knowledge. Now a bench warrant for my arrest has been issued for failure to appear in court. Yesterday I paid a $500 retainer to a lawyer to clear this mess up. All this over $143 in unpaid school fees. This system is flawed.
    0 Votes

  • SH
    Jan, 2011
    sara
    Hey Bill- isn't it the inquiry into your credit that they will actually be using to find the account? So if there is no credit check, maybe it's safe. Thanks!
    0 Votes

    • BA
      Jan, 2011
      Bill
      One job I have never held is a skip-tracer. Here is what little I do know about the job: Skip-tracers use online tax information, phone number databases, credit reports, utility bills, and social engineering to locate people and their assets. A bag of trash containing bank statements would be all it would take to find a person's assets. Whether a bank account appears in a credit report would not stop a determined person trying to find your assets.
      0 Votes