A bank levy occurs when an individual owes debts that he does not pay and the creditor subsequently sues him for those debts and obtains a judgment from the court in the amount the debtor owes. Depending on the enforcement laws for the debtor's state, the creditor then may be able to request a writ of garnishment -- called a "writ of execution" or "writ of attachment" in some states – to levy the debtor's bank accounts. If you find yourself facing a bank levy, you have options that help you protect your money and, in some cases, recover previously levied funds.
Pay the Judgment
If you are financially capable of paying off the creditor's judgment, doing so satisfies the judgment and the creditor must release the bank account levy without seizing any funds from your accounts. Consumers who pay off their judgments should request that the creditor provide them with documentation noting that they satisfied the judgment. If your state allows you to pay judgments directly to the court, you can request immediate proof of payment from the court as soon as you pay off the debt. The court then notifies the creditor of your payment -- stopping any pending bank levies.
Claim Exempt Status
Creditors can seize money from your accounts -- but only if that money is not exempt from seizure. Federal benefits, such as Veterans' benefits and Social Security benefits, are exempt from seizure along with alimony, unemployment, child support and most retirement pensions.
If the funds in your bank account are legally exempt, request an exemption claim form from your bank. Once you fill out and return the exemption claim form, your bank cannot legally release any funds federal law classifies as exempt to your creditor.
Contest the Judgment
Creditors must have a valid civil judgment against you in order to levy your bank accounts. If you return to court to contest the judgment and win your case, the court revokes the creditor's judgment. Not only does it lose the ability to levy your bank balances, it must return any previously levied funds. State criteria for reopening a judgment case vary, and some states place time limits on how long consumers have to contest a judgment before the court will refuse to re-examine the circumstances surrounding the ruling. Thus, if you plan to contest your creditor's judgment, its crucial that you do so as soon as possible.
You can protect your bank accounts from a levy by filing either Chapter 7 or Chapter 13 bankruptcy. Federal law in the form of an automatic stay protects debtors from collection activity immediately after filing a bankruptcy case. No creditor can enforce its judgment by levying your bank accounts during this period. If a creditor levies your bank account after you file for bankruptcy, the court will order that it return the garnished funds.
- Bankrate: Creditors Can Garnish Your Bank Accounts; Justin Harelik; November 2006
- Comptroller of the Currency Administrator of National Banks: Answers About Garnishments
- Neighborhood Economic Development Advocacy Project: Vacating a Default Judgment (Order to Show Cause); 2007
- Methner Associates: Can I Get Back Garnished Funds When I File for Bankruptcy?; Matt Berkus; Matt Berkus; 2010
- Neighborhood Economic Development Advocacy Project: The Basics of Defending Creditor Lawsuits
- Lawyers; Creditors' Legal Rights; William Fisher