| This explanation is long, is from a link but I was concerned that by offering the link, this part would be difficult to find within it. Here is a a good explanation and it does mention that it is wise, beforehand, to keep the exempt funds in a separate account rather then entail a long process of eliminating them in the instance you are informed of a judgment.
Exempt Funds
Even if the bank account is in just your name, there are some types of funds that are considered "exempt" from debt collection under state or federal law. The rationale behind these laws is to allow people to preserve the basic necessities for living. Although it varies by state, exempt funds would typically include:
* Most government benefits, including Social Security, unemployment insurance, veterans' benefits and public assistance
* A percentage of your earned wages, which varies by state
* Alimony or child support payments, and other payments for the support of a dependent
* Proceeds of the sale of property which is exempt from collection, such as a homestead exemption
* Disability or unemployment benefits from your employer
* Workers' compensation
* Retirement benefits, such as pension or annuity payments
* Life insurance benefits due to the death of an insured or for wrongful death claims
* Payments due to personal bodily injury, in an amount that varies by state
In addition, many states allow debtors what's called a "wildcard" exemption of $1,500 to $2,000 in property or cash to be used as the debtor sees fit. So if you are forced to divulge your assets in a post-judgment procedure (sometimes called "supplemental proceedings" or "citation to discover assets"), you'll want to let the debt collector know at that point that the funds in a particular bank account are exempt either because of the type of funds they are or because they are your wildcard exemption. You'll also want to write a letter to the bank ahead of time to let them know that all the funds in a particular account are exempt.
Seizure Process
When the bank receives notice from the debt collector, the bank must "freeze" any funds in your account that are not exempt from collection. That means you can't withdraw the money or use it to pay checks you've written. If you've already written checks on the account and are in danger of "bouncing," you'll want to make alternate arrangements for payment on those checks.
When you receive notice from the debt collector or bank that your account has been frozen, you'll want to notify the bank and the debt collector in writing if the funds in the account are exempt. Ideally, you would be able to prove that all the funds in a particular bank account are exempt. If you have "commingled" exempt and non-exempt funds, it becomes more difficult to protect. If you know ahead of time that there will be a court judgment entered against you, it makes sense to keep the exempt funds in a separate account, and not commingle exempt and non-exempt funds.
Many courts allow you a formal hearing to explain why the frozen funds shouldn't be seized or garnished. If the notice of the seizure or garnishment of funds doesn't detail the steps you must follow, call the clerk of the court where the judgment was entered and find out the appropriate process. There usually isn't a lot of time to protest a bank account garnishment or seizure, so it's best to move quickly. And the sooner you act, the sooner the exempt funds will again be available for your use.
It's important to provide detailed documentation that the funds in the account are from entirely exempt sources. For instance, you might provide:
* Bank deposit slips
* Paystubs
* Statements from government benefit agencies
* Statements from insurance companies
* Real estate closing statements
* Pension or annuity statements
* Bank account statements and registers
* Any other documentation you can find that traces the funds from an exempt source into that particular bank account
It's best to provide the detailed document to the debt collector and the court ahead of time, in as clear a manner as possible. | 
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