How to Open A Bank Account No Creditor Can Touch

If you want to open a bank account that your creditors cannot touch, there are a few options to explore. While there is no guarantee that creditors will not seize your assets once it is discovered it is still possible to protect your assets through a number of ways.

The key here is creating a structure before you become involved in any legal situation as it is much easier to protect assets before a lawsuit is brought forward.

Once a lawsuit has been brought forward there are certain measures that you can take, but it is not as effective is more complicated and carries more risk. That is why we always recommend clients not to wait until you a problem arises to take action. To be prepared is to be forearmed. 

In this article, we will speak about four different ways you can create and set up a bank account that will make it much more difficult for creditors to get at you.

How to Open A Bank Account No Creditor Can Touch

Here are four ways that we have found that can be used to protect your assets. Each situation will be different and the remedy will largely depend on where you live, your residency, the type of assets you have and the legal troubles that you are seeking to protect yourself from. Asset protection is not a one size fits all mechanism and requires an individual solution.

With that said here are just a few ways and scenarios you could use to prevent creditors from breaking into your accounts.

4 Ways to Protect Your Bank Account From Creditors

1. Open a bank account intended for government benefits
2. Choose a bank account that offers 100% wage garnishment protection 
3. Open a business bank account with an LLC
4. Open an offshore bank account using foreign trust and LLC

1. Open a bank account intended for government benefits

This bank account gives you the option to receive funds that protect you against creditors accessing your funds. It is against the law to access funds within the lookback period which may last up to two months.

Some examples of exempt funds are: 

• Disability Benefits
• Life Insurance Benefits 
• Veteran's Benefits
• Unemployment Benefits
• Social Security Benefits
• Retirement Benefits 
• Child Support/Spousal Benefits 

These funds will only be considered exempt if the money has been directly deposited into your account. The exempt becomes void if you withdraw funds and transfer them to another bank account because you will need to prove that funds were taken from exempt sources.  

Though banks are required to make exempt funds available at all times, you have to ensure that your debt collector will not touch your payment for Social Security of child support. It is important that you open a different bank account intended for holding exempt funds that are directly deposited. 

2. Choose a bank account that offers 100% wage garnishment protection  

It is necessary to choose a bank with favorable bank levy laws so you can prevent judgment creditors from freezing your bank account or take all the funds from your account. Keep in mind that each and every state and country have different laws on bank levy so make sure you know which classification of exempt funds your bank account falls under. 

In New York, for instance, banks are prohibited to restrain the first $1,716 in any type of bank account that is not receiving any payments that have been statutorily deposited. If the bank account receives exempt payment, the amount will also go up. Other states in the US, for example, have higher exempt funds such as North Dakota, Maryland, South Carolina and New Hampshire. 

As for wage garnishment, most state laws will protect 75% of your income, giving the creditor only 25% of your earnings. However, there are also some that will protect 100% of your salary such as South Carolina, Florida, Pennsylvania and Texas. 

You might need to open a bank account in a state that can give you favorable wage garnishment and bank levy protection so when the time comes the creditor freezes your bank account, all you have to do is to open a new bank account. 

You also have to keep in mind that laws may vary from state to state so before opening any type of bank account, make sure you know the laws in your state. If you find out that it does not have favorable laws, consider searching for a local bank where laws are favorable. It should be a new bank because opening a new account in the same branch you opened your existing account will only create conflict. 

Make sure that you know the requirements of these banks before you open an account, especially if you are not a resident.  You might also want to call the bank's customer service phone number to obtain precise information. 

3. Use a Business Bank Account with an LLC

If you are planning to start a business or you have an existing business, an LLC business bank account is the way to go. Business accounts are helpful because they prevent creditors from freezing funds intended for your business. While it might be convenient to open a new business account, there is a risk of getting everything mixed up. 

With a Limited Liability Company (LLC) that is the owner of the account, you will be able to separate your business from your personal account. If your debt is classified as personal, the creditor can not touch your LLC bank account. However, you must keep in mind that your business funds and personal funds should be avoided or the protection that LLC provides will be denied. 

If you mix your business funds with your personal funds, creditors will ask the court to seize the funds from your business bank accounts. 

4. Open an offshore bank account using foreign trust and LLC

Opening an offshore bank account in a country overseas is likely the single most effective thing you could do to ensure the protection of your assets. Having a second legal system outside of the country where you live makes it much harder for creditors to get access to your funds. This is because local court orders are not recognized in a different country. The only way for your account to be opened is through a criminal or civil investigation. Otherwise, it makes it nearly impossible for a creditor to gain access to your account

Keep in mind that the process involved in opening an offshore bank account is not as straightforward as opening local domestic bank accounts, largely because there are more requirements and KYC processes that you must go through. However, some countries such as Belize or St Lucia, have very minimal requirements as far as nonresident account opening.

How to Hide a Bank Account From Creditors?

There are many different types of structures that can be used in order to create a bulletproof asset protection structure to hide your account from creditors and anyone who would want to do you harm.

Having a business account that is opened by an LLC which is owned by an offshore asset protection trust is a very effective structure that shields assets from prying eyes. We often recommend using a Cook Islands Trust together with a Nevis LLC and corporate Swiss Bank account. In this example, the offshore trust will own the LLC and the business bank account that is opened. Because the account is opened by the business and is not a personal account there is a legal separation of powers which effectively creates a second separate legal entity whereby your direct hold over the account is diminished.

This type of arrangement makes it much more difficult for creditors access to your funds. It is important that you consult a professional to establish the offshore structure for you. If done incorrectly it could make it easier for creditors to get access. 

How to Protect Your Bank Account from Creditors? 

This is not an easy answer to give in 100 words. The key here is making sure that you do not commit a fraudulent transfer or fraudulent conveyance which is an intentional sale or transfer of your assets so as to intentionally avoid paying creditors if a lawsuit has already been brought against you.

Some examples of fraudulent conveyance is when you:

• Move out a large sum of money to your offshore bank account before filing for bankruptcy.  
• Transfer all your funds to another person, family member, business colleague or spouse. 
• Sell your assets at less than their original value then continuing to use it after the sale. 

If you intend to hide your money, fraudulent conveyance's look back period, in most cases, is one year. Intentionally transferring your assets to a different account inside the time gap is illegal and likely to be prosecuted with heavy penalties

Creditors need to prove that the asset transfer was intentional to avoid making a payment. This makes it a very challenging task and does not include things like withdrawing money for living expenses or selling property. Fraudulent transfer is making a direct correlation on the part of the individual to move funds with the intent to defraud another.

Now that we have explained what can often make things more difficult for asset protection we can see how hiding your bank account and protecting your bank account has many overlaps.

However, we must state that if a creditor has already won a judgment in court against you will not be able to hide your bank account or assets. There are certain things that can be done to mitigate your exposure if you are in the middle of a lawsuit, but if there is a final judgment any transfer of assets would be illegal.

That is why it is much easier to protect your assets before a lawsuit has been filed.

How to Use a Business Bank Accounts to Avoid Garnishment or Levy?

A garnishment (usually used for wages) is often different than a levy (court-ordered collection tool) which is brought against an individual. The creditor levy does not have the right to go after a corporate bank account that is attached to an LLC even if the accused is a director or member (if the LLC is a non-single member company). The levy would have to be brought against the corporate entity as there is more than one individual involved.

It is much more difficult to go after a bank account held by a company rather than an individual, and even more difficult to go after an offshore LLC as opposed to a domestic LLC, and even more difficult to go after a multi-jurisdictional offshore trust and offshore LLC. There are many reasons for this that are beyond the scope of this article, however, simply stated, it is because a court case must be brought within the country where the corporate entity is located. As well as, offshore jurisdictions have high barriers to entry, which may include 1-2 year statute of limitations and significant proof of fraudulent transfer against the party involved.

Because countries have their own sovereignty, each country much respect the legal system and can not interfere in the country's due process. This is why foreign court orders have little bearing in another country. Places and structures like the Nevis LLC and a Cook Island Trust have many barriers that prevent all but the most ardent creditor to get access to your funds.

If My Bank Account is Levied Can I Open a New Account?

There is no restriction to you opening a new account if you have one account that has a levy against it. You are allowed to open a new bank account, however, that will not prevent the levy from being carried out.

Can a Corporate Bank Account Owned by an LLC be garnished?

A corporate bank account owned by an LLC can only be garnished if there is a judgment that is brought against the LLC specifically. Any owner, member, or director is separate from the corporate entity, which means that a suit brought against one member does not directly implicate or affect the other. A creditor would have to bring forth a suit or levy against the LLC in order to go after the accounts that are associated with the corporate entity.

Types of Protected Bank Accounts

1. Exempt Bank Accounts

One of the simplest ways to protect your funds is by using an exempt bank account. If you receive government benefits such as Social Security, unemployment, or disability payments, opening a bank account dedicated solely to these deposits ensures they remain safe from creditors. Federal law prohibits garnishment of these funds, provided they are not mixed with other deposits​.

2. State-Protected Bank Accounts

Several U.S. states, such as Texas and Florida, have laws that limit the ability of creditors to garnish bank accounts. You don’t even need to live in these states to take advantage of their protections. By opening an account in one of these states, you can keep your money out of reach of creditors​.

3. Business Bank Accounts with LLCs

If you run a business or are an entrepreneur, setting up a Limited Liability Company (LLC) with its own bank account provides another layer of protection. Since the LLC is a separate legal entity, your personal finances are shielded from business debts and vice versa. However, be careful not to mix personal and business funds, as doing so can lead to the loss of LLC protection​.

Bottom Line 

The above considerations are only a few options that you can use. Once you receive a summon from a debt collector things have already progressed much farther than what is ideal. Your options from there are more limited though you could explore an online business line of credit as it is designed for business use as opposed to personal purposes which is more secure as it is separate from your as an individual.

Whatever you choose, ensure that bank structure is done correctly, you do so before legal trouble comes and you structure it wisely so that you are less likely to find yourself a victim in the future.