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What a Bank Levy Is and How It Works

What a Bank Levy Is and How It Works, When you fall behind on payments, bank levies give creditors a potent tool for collection. That does not imply that you are helpless. It may be feasible to avoid a charge in some circumstances, particularly if the only funds in your account come from federal payments.

How a Bank Levy Works

Using a bank levy, creditors can legally take money out of your bank account. Money in your account is frozen by your bank, and the bank is obligated to give that money to your creditors to pay off your debt.

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. Some public creditors, like the IRS, do not need a court ruling. Several things to be aware of are:

  • Warning:¬†As soon as your creditor requests it, your bank will freeze your account while it assesses the case. You might not receive notice from your bank or creditors that a bank levy is taking place. A tax is a strategy creditors typically use only after they have given up on other ways to collect from you. Presumably, by that point, you would already know creditors are taking legal action and trying to get money from you.
  • Options for resolving disputes: You should have the chance to do so. By doing this, you can stop it from happening or limit how much money creditors can take overall from your account. If you do nothing, lenders may entirely drain your account, making it difficult to cover necessary bills. You can end up with bounced checks and extra late fees to other businesses. Additionally, you normally pay a fee to your bank to handle the tax.

Ways to Stop a Levy

Bank levies may be applied frequently and may continue until your obligation 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. Consult a local attorney (laws vary from state to state) to find out what options are available to you. Possible approaches include:

  • Creditor mistake: You can contest the levy and stop the creditor from going forward if you don’t owe them the money. If you already paid the bill or if the sum is erroneous, this strategy might be effective.
  • Identity theft: If you’ve been the victim of identity theft, you can prove that the money was obtained 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 rely on your residence, the law of the state specified in the credit agreement, the nature of the debt, and other circumstances.
  • No notice: If your creditor failed to provide you notice of any legal activities, you may not have been properly and legally served 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. It may be worth trying to negotiate so you can take some control over the situation. For example, the Internal Revenue Service (IRS) may release you from a levy if it determines the process is causing “immediate economic hardship.”

The funding source is equally important. Creditors might not be able to access the money in your account depending on how you received it. Your bank is required to determine whether the balance of your account comprises protected cash. However, if you have deposits from numerous sources, things could become more challenging. Special consideration is given to:

  • Federal payments: Benefits like Social Security payments or pensions for federal employees are usually safeguarded. However, you don’t have the same level of protection as you would if you were a private creditor if you owe money to the federal government.
  • Child support: You could also be able to avoid paying taxes on the money you received as child support. However, it can be simpler for an ex to access your bank account if you’re delinquent on child support.

Who Uses Levies – What a Bank Levy Is and How It Works

A levy could be the result of the debt owed to numerous 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, those who owe you child support, etc.) if they obtain a court order against you.

Get Legal Help

Again, if you might be in legal problems, it’s crucial to seek counsel from a nearby attorney who is experienced with your circumstance. State laws differ from one another, and conditions evolve. Also, every circumstance is different. It can be difficult to appeal a levy, and you might need to make an argument for yourself. Creditors will do every effort to prove that the money in your account isn’t exempt.

Frequently Asked Questions (FAQs)

Does the money come out of my account right away when the IRS levies my bank account?

Yes, but you can’t access it. Before the IRS seizes the funds, a 21-day holding period is in place. This is to give you some time to get in touch with the IRS and set up a payment plan for your tax burden.

Can money in a joint account be garnished?

While it’s not usually the case, creditors may have the authority to withdraw money from a joint account if it’s in your spouse’s name and you reside in a community spouse’s name.

What’s the difference between a levy and a garnishment?

Garnishments are court-ordered seizures of a debtor’s earnings before they are deposited into a bank account, as opposed to levies, which are typically used to seize money from a debtor’s bank account.
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