What Is a Bank Levy, and How Does It Work?

How to Stop a Levy

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Nobody can force you to make payments, but bank levies give creditors a powerful collection option when debts go unpaid. A bank levy is a legal action that allows creditors to take funds from your bank account. Your account gets frozen, and the bank is required to send funds to satisfy your debt.

In some situations, it’s possible to prevent a levy, especially when the only money in your account is from federal benefits.

Bank Levy Basics

A bank levy happens when a creditor demands funds from your bank account. The creditor provides a request to your bank showing proof of a legal judgment against you, and your bank is required to honor the request.

Your bank will freeze your account and review the situation, but you might or might not get notified by your bank (or your creditor) that a bank levy is in progress. However, a levy is a strategy that creditors typically use only after they have given up on other ways to collect from you (so you would presumably be aware that creditors are trying to get money from you).

You have the opportunity to dispute a levy – to prevent it or to reduce the amount of money that is taken from your account. If you take no action, it’s possible for lenders to completely empty your account, which makes it difficult to pay important expenses (you might end up bouncing checks and paying additional late fees to other organizations – plus your bank typically charges you a fee to process the levy).

If you’re not sure who is levying your account, your bank should be able to provide contact information for the creditor.

Who Levied the Account?

Several different types of creditors might be responsible for a levy. The IRS and the Department of Education are especially likely to use levies, but private creditors (lenders, child support recipients, and so on) can also win a judgment against you and levy an account.

If you owe money and have not been able to reach an agreement with any creditor, it’s best to anticipate that they might use a levy as a strategy to collect funds.

Limiting Levies

Bank levies can continue until your debt is completely satisfied, and they can be used repeatedly. If you don’t have sufficient funds available on the first try, creditors can come back numerous times.

However, there are ways to prevent and limit levies to your account. Speak with a local attorney (laws vary from state to state) to find out what options are available to you. A few potential approaches are listed below.

  • Creditor error: if you don’t owe the money (you’ve already paid, or the amount is incorrect), you can fight the levy and prevent the creditor from moving forward
  • Identity theft: if you’re a victim of identity theft, you can show that you never received the funds
  • Old debt: if the statute of limitations has passed, your creditor might not have the authority to collect from your account
  • No notification: if you have not been notified of your creditor’s actions, you were not properly and legally served, and it may be possible to stop any future legal action against you
  • Bankruptcy: filing bankruptcy might stop the process, at least temporarily
  • Negotiation: any agreement you reach with your creditors can stop the process – at may be worth trying to negotiate so that you can take some control over the situation

The source of funds also matters. Depending on how you got the money in your account, it might not be available to creditors. Your bank is supposed to figure out if your account balance contains protected funds, but things can get complicated if you have deposits from several different sources.

Federal benefits (such as Social Security payments or federal employee pensions) are often protected. However, if you owe money to the federal government, you don’t enjoy as much protection as you would if you owe a private creditor (being behind on child support is also problematic). Money ​that you’ve received from child support payments may also be exempt from collection.

Again, it’s essential to get advice from a local attorney who is familiar with your situation whenever you're potentially facing with legal troubles. This page is a general overview, but the laws vary from state to state, and things change over time (plus your situation is unique). Appealing is a complex process, and you may have to argue your case – creditors will disagree with you about whether or not funds in your account are exempt.

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