You’re about to go grocery shopping so you head to the ATM to withdraw some cash from your bank account only to find out that your account is frozen! You call up your bank and you are told that a creditor levied your bank account…again! You’re confused thinking that you’ve already satisfied your previous debt. So, why is your account being subjected to a bank levy again?
To understand why this is happening, it is important to discuss, how the process works, and what you can do to avoid this from happening to you all over again.
How Often Can My Bank Account Be Levied?
Do you know that a creditor can perform a bank levy on your account more than once? Your savings or checking account could be subject to a bank levy multiple times until your creditor is able to recover all the money that you owe.
This happens when you don’t have enough money in your bank account to satisfy the debt amount.
If the bank account you are using was levied once before, it is advisable to check whether the amount was paid in full or how much of it was paid. This will give you an idea whether a future levy is possible.
Why is My Bank Account Being Levied Again?
The reason why your bank account is being levied again is because the amount of money you had in your bank account was not enough to pay off the debt you owe your creditor when your bank account was frozen the first time.
When a bank levy takes place, what usually happens is that if you have more money than your owed debt, then only the debt amount will be frozen. For example, if you owe the creditor $3,000 and your account has $6,000, then only the $3,000 will be frozen.
However, if the debt amount is equal or higher than the money you currently have in your bank account during the bank levy, the creditor can drain your bank account to get back as much as it can.
So if you owe the creditor $3,000 but there’s only $2,700 in your bank account, the creditor can remove all of that money. At this point, it will be at the discretion of the creditor whether to get another court order to get back the remaining amount of $300. Some creditors may let this go but you’ll be surprised that some will still try to recover the amount.
If your debt is much higher, like let’s say $10,000 and you only have $3,000 in your account then the creditor is much more likely to do another bank levy. To recoup the remaining $7,000, they can get another permission from the courts to do a bank levy again in the future. According to a debt adviser, this court order is typically not difficult to get as long as the creditor can prove that there is still a pending amount owed.
Can a Bank Levy Take Place Without Me Knowing It?
Learning that your bank account is frozen can be extremely frustrating and also inconvenient, especially if you have checks and payments that you need to clear. Many people complain that the bank levy took them by surprise and they were not notified that it will take place.
Contrary to common belief, the bank and the creditor are not required to give you a notification before a bank levy is performed on your account. Obviously, if they give you a notification, then you are just going to drain your bank account and the creditor will not find any money to recoup the debt from.
However, you should not be completely clueless because when a creditor files the lawsuit, it is required to notify you by serving you a copy of the complaint. This is the point when you can challenge it if you believe that the debt is not valid. This should also clue you in that a bank levy could take place in the coming weeks or months. Knowing this information can help you move your funds to another account or avoid keeping large amounts in your bank account until the debt is paid off.
It is then very important not to ignore a lawsuit and check the debt amount the creditor is suing you for. However, if you ignore the lawsuit or for some reason are not able to get a copy of the complaint, this could increase the chances of the creditor winning the lawsuit and performing the bank levy without you knowing it.
If your existing bank account was already levied before, you should be careful about saving large amounts of money in that bank account as the creditor can remove those funds again with another court order.
What Do I Do If My Bank Account is Levied?
If you were already subjected to a bank levy, you have different options on how to proceed. This will depend whether you accept the debt or if you think the debt is not valid.
1. Pay Off The Debt
If you have the ability to pay off the debt, then do it immediately. This is the fastest and surest way to get rid of the bank levy and avoid future bank levies. Once your debt is paid off, don’t forget to get proof that the debt is settled. This is important to avoid debt collectors from getting you to pay money that you’ve already paid off.
2. Don’t Keep On Using Your Bank Account Especially If the Debt is Not Fully Settled
If the amount in your bank account was not enough to cover your debt during the bank levy, it is practical not to use the same bank account to deposit and keep your money. When your bank account is frozen, you can still receive payments and deposit money but you cannot withdraw from the account.
While there are certain exemptions on what a bank levy can take, it is much more convenient to use a separate financial account to conduct your transactions in the meantime. For example, you can get a reloadable prepaid card and use this to store your money, pay bills, and perform other financial transactions.
3. Contest the Levy
If you think that the bank account levy is not valid, then you can contest it. There are different approaches that you can take to contest a bank levy including the following:
- The debt amount being levied is incorrect
- You were not served the lawsuit complaint properly
- You already paid off the debt and can show proof
- You were a victim of identity theft
- The debt is old and the statute of limitations or timeframe to collect the debt has already passed
- The money that was levied were protected funds and should be exempt from the levy. This gives you 10 days to file a claim of exemption.
4. File for Bankruptcy
If you run out of any other options, an extreme method to stop a bank levy is to file for bankruptcy. You must be aware, however, that filing for bankruptcy will cover all of your debts and not just a single debt. It is also possible that filing for bankruptcy will only grant you temporary relief from the bank levy and you could still face a bank levy in the future if the debt is not qualified for discharge in bankruptcy.
Can a Creditor Levy My Salary?
Depending on your local state laws, a major portion of your monthly salary will typically be protected from a bank levy. Many states allow only up to 25% of your wages in the past 30 days to be recouped and this process is called “wage garnishment”.
Unlike a bank levy that typically takes a huge lump sum amount, wage garnishment will only take 25% a month until the debt is satisfied. That means if your salary is $5,000 a month, the debt collector can only get up to $1,250.
What Funds are Exempt From a Bank Levy?
Not all the funds in your bank account can be levied by your creditor. There are some funds that are protected by law that cannot be levied. These exemptions vary from state to state.
Some common funds exempt from bank levies are the following:
- Child support payments
- Spousal support payments
- Social Security benefits
- Unemployment benefits
- Disability benefits
- Veterans’ benefits
- Retirement benefits
If you believe that the funds removed from your account fall into these categories, you have up to ten days from the time your bank account was frozen to file a claim of exemptions. This will allow you to get back the funds that were taken away. Moving forward, it may be more practical to use a separate bank account for exempt funds to prevent mistakes from taking place which will save you a lot of hassle.
Can a Creditor Levy My Stimulus Check?
The Covid-19 pandemic has stalled many businesses and increased the rate of unemployment in the United States. Because of this, the US government issued stimulus checks amounting to $1,200 as a form of relief payment to help sustain American families.
The problem, however, is that the CARES Act also known as the Coronavirus Aid, Relief, and Economic Security Act does not explicitly specify that these stimulus payments are off-limits to debt collectors. Some legal advisors then believe that this is a loophole that can be used to collect debts from people receiving stimulus checks.
However, some states including New York, Ohio, Washington, Illinois, and Oregon are warning creditors not to take these stimulus payments or freeze them to pay off old debts. New York attorney general Letitia James said that these are public benefits and should be exempt from legal processes. In Oregon, Governor Kate Brown signed an executive order barring creditors from seizing stimulus checks. Brown said that these payments were supposed to provide relief for people who have lost their livelihoods and not to reward debt collectors.
If you have a problem with getting your stimulus payment from your bank account, check your local state laws and see whether you can still file a complaint. If you live in a state where debt collectors are barred from freezing your stimulus payment, you can use this as a way to get your money released from your bank.
When Can a Lender Levy My Account?
A bank levy can only take place once a creditor gets a court-ordered judgment, meaning it went through the legal levy process by suing you for not paying your debt. A bank levy, therefore, is a legal way for a creditor to take money directly from a bank account, which will usually be your savings or checking account.
The process of a bank levy is not immediate. If you missed a couple of payments, this does not mean that your creditor can instantly take over your bank account without you knowing it or without your permission.
If you’re delinquent on your debts and your creditor cannot find any other means to get you to pay, the creditor can file a lawsuit to get authority to do a bank levy. If your creditor is able to prove in court that you owe the money, the courts will give them a court order so they can remove funds from your bank account.
After winning the judgment, the creditor will then notify your bank about the outcome and your bank will freeze your bank account and send the amount owed to your creditor.
Protecting Yourself From a Future Bank Levy
Getting a bank levy on your account can be a hassle. For you to avoid this legal action, it is important to take control of your finances and review your existing debts. If you believe that you do not have the ability to make regular payments, be proactive and renegotiate terms with your creditors.
You can also consider consolidating your debts with more manageable terms. If you have old debts, it is better to check their status instead of just ignoring them and finding yourself being sued and getting a bank levy on your account.
Aidan has been writing about personal finance for over 6 years. Prior to this, he worked as a Corporate Finance Analyst where he specialized in Due Diligence, Company Valuations and more. He is a CFA charterholder.
