Have you ever been behind on payments? Bank levies will give your creditors a powerful tool to collect their dues from you. A bank levy is actually a legal action that allows owed money to get taken directly from your bank account.
Once set in motion, your bank will freeze the funds in your account and then send the amount you owe to your creditors to settle your debt.
The creditor must provide your bank with a proof of a court ruling against you before the bank can freeze your account. In some situations, your bank account may survive the freeze, especially if the only funds in your account are from federal benefits.
However, some creditors do not need any court ruling; these include government agencies that collect state and federal taxes as well as student loans and child support. Learn more about how to avoid bank levies in this guide.
Do Not Ignore Debt Collectors
Even if you remove the bank levy, you may still face problems. For example, checks you wrote before the freeze will not go through, and you will not be able to use the money in your account.
To avoid this, pay off your debts on time. Do not ignore the debt collectors when they come knocking. If you do not have enough cash to clear the debts, you can agree with them and make a manageable payment plan. This can give you more time to settle your debts.
Many creditors, even the federal and state taxing authorities, will be more than willing to work with you on this.
Have Government Assistance Funds Deposited Directly to Your Bank Account
If your bank receives a garnishment or an attachment order, it will review the funds in your account to find out if a part of them is related to government assistance income, such as veterans or social security benefits. These kinds of funds will be spared from the freeze.
Other benefits covered by this rule include:
- Unemployment and sickness
- Federal railroad retirement
- Supplemental Security Income
- Federal Employee Retirement System
- Civil Service Retirement System
If the assistance is deposited directly to your account, the bank will not have the authority to freeze them. But if you receive it in the form of checks, then the funds can get frozen.
They will stay frozen until you prove or claim the right to have the money released. In short, to avoid the bank levy, switch all government assistance to direct deposit.
Maintain Your Social Security Funds at the Same Account
Your social security funds enjoy special protection, especially if you have them deposited directly to your account. They will retain their protection even after you receive them. However, if you transfer them to a different account or if you get them mixed up with other funds, they may lose this special protection.
It would be difficult for you to prove that the funds are from social security. The secret to avoiding these funds from being frozen is to have them stay in the account where they were initially deposited.
Know Your State’s Exemptions
Bank levy laws by state can vary significantly. Each state has a set of laws that protect certain incomes or property from being claimed by creditors to settle debts. For example, California bank levy exemptions include protections for certain retirement accounts and public benefits. Try to learn these laws so you can be able to ward off creditors who may want to claim your income or property.
When you have both exempt and non-exempt funds in your account, use the non-exempt funds first to pay your bills so that only the exempt funds can remain in your account.
To Avoid an IRS Bank Levy, Keep Separate Accounts for Exempt Funds
You can keep a separate account for money that is protected by law. This way, if an attachment occurs, you can easily prove the account only holds exempt funds. But if you mix protected and unprotected money in one account, it may harder to show a judge that the frozen money should qualify for an exemption.
You will have to trace the source of the funds to prove your case. This is a daunting task, and it may take a very long time.
Feeling Overwhelmed?
Do Not Keep Money in a Bank You Owe
Keeping your money in a bank that holds your checking or savings account makes it easy for them to use your savings to offset any amount you owe them.
If you fall behind on your payments and as long as you owe some money to the same bank that holds your savings or checking accounts, they will not need any court order or judgment to do this.
To be safe, it is better to keep your funds in a bank that you do not owe any money. For example, many businesses use bank accounts linked to credit or loans. But it is not a good idea to keep personal savings in these accounts.
Talk to an Attorney in Case of an Issue with a Bank Levy
It is unfortunate that once your creditor has made a request, your account will immediately get frozen as your bank reviews your case. Neither your bank not your creditor will notify you that the levy has been effected. You might only realize when you try to make some transactions or withdrawals.
If you feel that your creditor has not acted fairly, you have every right to dispute the bank levy. This can reduce the amount your creditors can claim from your account, or it may stop the levy altogether. If you do not take any action, the creditors may sweep your account clean, leaving you with the stress of keeping your business afloat.
You may not be in a position to handle this situation on your own because appealing a levy is a complicated process. That is why, you should consider talking with an attorney. In some cases, an IRS tax levy can be reversed, depending on how quickly you act.
They can help in protecting your money and other property from creditors. If you want to learn more about taxes, credit, and other financial issues, you can visit our blog.
Frequently Asked Questions
It’s a legal action that allows creditors to withdraw money directly from your bank account.
Yes, private creditors usually need a court ruling to levy your bank account, but government agencies like the IRS or child support enforcement often do not.
You can stop a bank levy by negotiating with your creditor, setting up a payment plan, or filing a legal challenge with help from an attorney.
A bank levy can seize all non-exempt funds in your account. There’s often no upper limit, unless your state laws provide protection.
The IRS can issue a tax levy to recover unpaid taxes, including directly garnishing your wages.
The release time varies, but it can take anywhere from a few days to several weeks depending on court processing and negotiations.
The IRS can levy multiple times until your tax debt is paid in full, unless you take action to stop it.
Yes, but they must first send a final notice of intent to levy. If you ignore it, they can move forward without further warning.
Government agencies (like the IRS or child support enforcement) and private creditors with a court judgment.
In many states, yes , even if the debt belongs to just one of the account holders.
Possibly. Some states allow it, others require the creditor to register the judgment locally. It depends on bank levy laws by state.
Yes. State tax authorities and other government departments can issue levies without court orders in some cases.
