Can Pre-Paid Debit Cards be Garnished by a Judgment Creditor?

[HHM]

3/24/11

Question:

Can pre-paid debit cards with Visa or MasterCard logos be garnished by a judgment creditor?

Answer:

Actually, YES. I had done some Google’ing on this topic and most articles were rather vague with the answer and seemed more like guesses. So, I decided to go to the source. I called one of the major players in the Pre-Paid Visa/MasterCard Debit Card industry and spoke to a high ranking individual (that sounds too Woodward and Bernstein to say it like that, but oh well).

Can pre-paid debit cards be garnished, yes; have pre-paid debit cards been garnished, yes. Is a garnishment common, no. The average daily balance on these cards is around $100; so from a practical standpoint, pre-paid debit cards are not an attractive target and there are other obstacles which will discuss below.

How can these cards be garnished? In reality, these pre paid cards have an underlying account that is underwritten by a bank and that account is FDIC insured. As such, the account is linked to a specific individual. So, if the card issuer received a garnishment order, then the pre-paid card can have the funds withdrawn and paid over to the judgment creditor.

Pre-paid debit cards are different than gift cards. Gift cards, even the Visa or MasterCard gift cards, do not require personally identifying information. So, gift cards cannot be garnished by sending a garnishment order to the issuer. However, if you have a $100 Visa gift card in your wallet and show up to a post-judgment debtor’s exam, the creditor attorney can require you to turn it over and many collection attorneys will have a mobile phone application to accept credit card transactions on the spot.

However, there are two other hurdles to a judgment creditor garnishing a pre paid debit card. (1) There is no easy way for the judgment creditor to find out you have such a card, and even if the judgment creditor could find it, given the usual low balance on these types of cards, it is generally not worth the cost to issue the garnishment order. (2) The issuing institution may not have a registered agent within the state to accept service of a garnishment order. In general, a company does not need a registered agent in a state to offer a product (like a pre-paid debt card). However, given the nature of this industry, many issuers do have registered agents because a license is required to be able to transfer funds. The company I spoke to has registered agents in about 40 states.

Why does this issue even matter? For me, it was one of those questions that made me go, hmmmmm! However, some people really let their debt get seriously out of control before taking action and sometimes need to take steps to buy time, have money to live, and one tactic available is to stop using bank accounts. But some people are not entirely comfortable with going to all cash (for whatever reason) or may not be able to go all cash. So, one option is to use pre-paid cards to pay for necessary day to day expenses. So, the idea with this investigation was to assess the true risk of using pre-paid debit cards. The answer: is there a garnishment risk, yes; has it happened in the past, yes; is it likely, probably not.

http://www.**********.com/blog/2011/...-be-garnished/

[StrawberrySu]

Thank you HHM for going the extra mile and finding out this information! I have a pre-paid debit card I have not activated yet, and now thanks to your info I will not do so. I have researched this as well, and never got a definitive answer.

[HHM]

I really think the risk is low. As a starting point, you can go to your state's Secretary of State website and see if the issuer of the card has a registered agent in your state.

Keep in mind, this concern is ONLY an issue if your creditors sue you and get a judgment.

[WhatMoney]

So HHM is really Matt Berkus?

However, there are two other hurdles to a judgment creditor garnishing a pre paid debit card. (1) There is no easy way for the judgment creditor to find out you have such a card, and even if the judgment creditor could find it, given the usual low balance on these types of cards, it is generally not worth the cost to issue the garnishment order. (2) The issuing institution may not have a registered agent within the state to accept service of a garnishment order. In general, a company does not need a registered agent in a state to offer a product (like a pre-paid debt card). However, given the nature of this industry, many issuers do have registered agents because a license is required to be able to transfer funds. The company I spoke to has registered agents in about 40 states.

So the next question - what about PayPal? PayPal keeps your money in several major banks under subaccounts that only PayPal can access. While PayPal is registered in most states as a money transfer business, I doubt they have any agents in these states. The difficulty of serving PayPal, who is likely not located in your County, seem to make this a rare event which has never been documented on the web, yet.

I also agree the risk for money cards is extremely low. If it was at all common, there would be consumers all over the Internet screaming about how they lost money to a creditor on a pre-paid money card.

[IamOld]

WhatMoney - so are we saying that a paypal account may be possible to use? I've also noted and read that small state licensed banks in Delaware are an option, as DE does not allow garnishments on bank accounts...

any thoughts?

[HHM]

I think paypal carries the same risk as pre paid debit cards. Maybe a slightly higher risk actually (it is more well known). Also, just one clarification, the company only needs a registered agent at the state level, not the county level.

Bottom line, if the account can be linked to a specific person (e.g. pay pal accounts) there is "some" risk.

The only zero risk alternatives are cash, money orders, and true gift cards.

But really, let's bring some perspective here, if you are at this point....DO SOMETHING about already. Playing cat and mouse and having to so alter your lifestyle to avoid creditors is not a life.

[IamOld]

I am - third meeting with bkprcy atty in two weeks - Ch 13 for me OR wife Ch 7 for the other...I'm VERY hopeful that my lawyer is familiar with Lemming as my income from multiple P/T is declining....

THANK YOU VERY MUCH!!!!!!!!!!!!

[HHM]

I think you mean "Lanning"

Every attorney worth his salt has at least heard of it and knows what it entails, but it is very specific in what it holds. The changes need to be certain or virtually certain. So if you are working P/T and there is only vague idea that it will decrease, Lanning isn't that helpful. You will probably need to quite those jobs prior to filing to make use of Lanning, or go into the "slow season" to demonstrate the decrease and that a change actually occured.

[IamOld]

THANK YOU HHM!!!

Sorry I meant Lanning :-)

I can demostrate the slowness of the P/T jobs very easily:

a) I have been assigned FAR fewer than before

b) likely will quit one (I simply cannot keep up...I physically cannot...)

c) and again, LEGALLY each assignment has "no guarantee" of any further assignment.

Does this sound reasonable? I can show the above w/out any problems.

-----------
Can I ask a completely different question if I may?

There is a chance - a semi-small chance that I may get another job in another state (a no garnishment state :-) - at any rate, my income from primary job would be a bit MORE BUT, spouse wouldn't be working for a while, and two P/T would END.

If we move - IF - would that effect a bankruptcy ALREADY filed? (and I may not know about this job before filing...)

IF we move and have not filed, I realize that we have to use the exemptions of my current state (which is NO problem for us) - my question is - do we use the MEDIAN of the new state? (With lesser income - even though the median of the new state is about 10K less), after a month or two there Ch 7 would be much easier....again NO guarantee on the new job (God knows, if they do a credit check it ain't gonna happen, but it's a non-profit so I'm keeping fingers crossed...)

[Goteki45]

I have a prepaid debit Mastercard. I'm about to file Ch 7 with my lawyer in a few weeks. I've been closed out my B of A Checking account. The issuer of my prepaid debit card isn't a well known issuer, so I am not worried about the finding out who they are. Even if they did, I would simply withdrawal my money before the judgment is rendered and put it on an prepaid accout with a different carrier. Now if they decide to garnish your paycheck, then it doesn't matter, they got you.

[IamOld]

Tahnk you Goteki - I've sort of made peace with payroll garnishment - not that I want to - I just want them to leave my bank account alone...there is a way to protect it in my state, the question is it AFTER they freeze it or before...