When you fall behind on payments, bank levies give creditors a potent tool for collection. That does not imply that you are helpless. When the only funds in your account come from federal benefits, there are some circumstances where you may be able to avoid a levy.
How Bank Levy Operates
Creditors can legally take money out of your bank account using a bank levy. Your bank freezes money in your account, and the bank is obligated to send that money to your creditors to pay off your debt. A court judgment is unnecessary for some government creditors, like the IRS. A creditor must submit a request to your bank with documentation of a court judgment against you before they can demand money from your bank account. 1 Several things to be aware of are: As soon as your creditor requests it, your bank will freeze your account while assessing the situation. You might not receive notice from your bank or creditors that a bank levy is taking place. A levy is a tactic creditor usually only employ after they have exhausted all other options to get payment from you. By then, you should be aware that creditors are suing you and attempting to collect money from you. Options for dispute: A levy should give you the chance to contest it. Doing this can stop it from happening or limit how much money creditors can take overall from your account. Lenders may completely drain your account if you do nothing, making it challenging to cover necessary expenses. You might end up with bounced checks and extra late fees to other businesses. Additionally, you typically pay a fee to your bank to process the levy.Note:
Your bank should be able to give you the creditor's contact information if you're unsure who levied your account.Alternatives to a Levy
Bank levies may be used repeatedly and may continue until your debt is fully satisfied. Creditors may contact you repeatedly if you cannot pay them in full the first time. Levies on your account, however, might be avoided or restricted. Find your options by speaking with a local attorney (laws differ from state to state). Potential strategies include:- Creditor mistake: You can contest the levy and stop the creditor from going forward if you don't owe them the money. This strategy might be effective if you have already paid the debt or if the amount is incorrect.
- Identity theft: If you've been the victim of identity theft, you can prove that the money was received by someone else.
- Old debt: If the statute of limitations has run out, your creditor may not be able to garnish your wages, but this may also depend on your residence, the state's law specified in the credit agreement, and the nature of the debt, and other circumstances.
- Failure to receive notice: If your creditor failed to give you notice of any legal actions—you were not duly and legally served—you may be able to stop any further legal action taken against you.
- Bankruptcy: Declaring bankruptcy could, at least temporarily, halt the process.
- Negotiation: The process may be stopped by any agreement you reach with your creditors. It might be worthwhile to try negotiating to gain some control over the situation. For instance, if the Internal Revenue Service (IRS) determines that the process is causing "immediate economic hardship," it may release you from a levy.
- The funding source is also essential. Creditors might be unable to access the money in your account depending on how you got it. Your bank is required to determine whether the balance of your account contains protected funds. If you have deposits from several different sources, though, things could get tricky. Special consideration is given to:
- Federal payments: Benefits like Social Security or pensions for federal employees are usually safeguarded. However, you don't have the same level of protection as you would if you owed a private creditor if you owed money to the federal government.
- Child support: You might also be able to avoid paying taxes on the money you received as child support. However, it might be simpler for an ex to access your bank account if you're behind on child support payments.
Use of Levies
A levy could be the result of several different kinds of creditors. Levies are frequently used by the IRS and the Department of Education, but they can also be used by private creditors (lenders, people who owe you child support, etc.) if they obtain a court order against you.Important:
It is best to assume that a levy may be used to collect debts if you owe money and cannot come to an agreement with any creditors.Get legal counsel
Again, whenever you might be in legal trouble, it's crucial to seek counsel from a nearby attorney familiar with your circumstance. State laws differ from one another, and conditions evolve. Also, every circumstance is different. You might need to make an argument when appealing a levy because the process is convoluted. Creditors will try to prove that the money in your account isn't exempt.Frequently Asked Questions (FAQs)
Does the money leave my account immediately when the IRS levies my bank account?
Yes, but you can't access it. Before the IRS seizes the funds, there is a 21-day holding period. This is to give you some time to get in touch with the IRS and set up a payment plan for your tax debt.Can a joint account's funds be garnished?
While it's not always the case, creditors may have the right to take money from a joint account if it's in your spouses' names and you reside in a community property state.What distinguishes a garnishment from a levy?
Garnishments are court-ordered seizures of a debtor's wages before they are deposited into a bank account, as opposed to levies, typically used to make money from a debtor's bank account.