Bank Account Levy
What does Bank Account Levy mean?
A bank account levy is the legal seizure of bank funds (including funds in a credit union, savings and loan association, or trust company) to satisfy a debt. The levy not only freezes funds in the account but also allows for the legal seizure of future deposits made to the account until the debt is satisfied.
A bank account levy differs from a lien, which is a legal claim placed on property, and a wage garnishment, which is the legal seizure of wages.
Bank account levies are generally allowed only after a creditor obtains a court order or judgment against a borrower. Exceptions exist, however, for the IRS or the Department of Education who may levy bank accounts without a court order, assuming they provide requisite notice of the levy and allow the debtor enough time to repay the debt.
Which creditors us bank account levies?
Bank account levies are most commonly used by the government, although private creditors may have the legal right to levy an account after receiving a court order. Private creditors generally favor the use of wage garnishments for debt collection.
How can I stop a bank account levy?
The best way to avoid a bank account levy is to pay your debts. If you cannot make debt payments it’s important not to avoid the creditor. Talk to the creditor, explain your situation, and determine if you can arrange a payment plan to repay your debts. Not all creditors will negotiate with you but some will.
Other ways to avoid a bank account levy include eliminating funds from all of your bank accounts, eliminating direct deposit of your check, and making sure your bank account is not used for direct bill payment. All of these actions must be taken prior to the judgment.
Next, understand what money or funds are legally protected in your state. For example, money such as Social Security and a certain percentage of your wages may be exempt, although you may have to prove this to the creditor and fill out an exemption form. The form plus documentation must be submitted to the creditor.
The final option is to file bankruptcy. Not only will filing bankruptcy stop creditors from getting judgments, it may eliminate bank account levies for certain debts.