Competing Claims to a Bank Account: Garnishment vs. Security Interest
Most financial institutions are aware that when they receive a garnishment of one of their customer’s accounts they must undertake certain steps to comply with the garnishment order, including, placing a hold on the account in the amount of the garnishment to be disbursed later at the Court’s direction. However, questions arise when the bank account that is the subject of the garnishment is also covered by a security interest either from the same financial institution or another lender. Provided that the security interest in the deposit account is properly perfected, then the security interest will take priority over the garnishment. However, a financial institution needs to be cautious and make sure that there is a proper security interest in the customer’s deposit account and that it has been properly perfected. There can be many circumstances which may result in a security interest in a deposit account not being properly perfected, and thus a financial institution would be wise to consult with its counsel prior to asserting a security interest in the deposit account that is the subject of the garnishment.