A bank account levy is a form of garnishment for an unpaid debt. A levy allows a creditor, debt collector or government tax agency to freely withdraw funds from a person's checking account for an unpaid debt. The bank levy lasts until the debt is paid or until the debtor makes other arrangements to end the levy.
Most bank levies start with a court order called a judgment. Creditors and debt collectors seek judgments by filing civil lawsuits in small claims court. The debt collector argues in court that the debtor opened a credit account, such as a credit card, made charges and then failed to pay as agreed. Illinois Legal Aid reports that lawyers representing debt collectors virtually always win lawsuits if the debt is valid.
The judgment requires the debtor to pay a certain amount of money to the debtor. However, the debt collector has the right to request a bank levy if the debtor does not pay. The judge in the case will sign a garnishment order allowing the levy, and the debtor's bank or credit union must abide by the judge's decision.
Federal and state laws do not require the bank to notify the debtor about the levy. That makes it possible for the debtor to be completely surprised by the levy. Once the levy is in place, the debtor may not access the bank account except to deposit money. Meanwhile the debt collector can withdraw money in a lump sum or installments to cover the debt. The bank levy can last indefinitely if the debtor does not pay the debt. Also, government tax collectors do not need permission from a judge to levy a bank account. State and federal laws allow them to send garnishment orders directly to the taxpayer's bank.
The best way to end a bank levy is to pay the debt. People with bank levies receive written notices from the court, debt collector or tax agency. Contacting the party holding the garnishment order can lead to a payment plan or settlement ending the levy. Other people may take more extreme measures, including bankruptcy. Filing for Chapter 7 bankruptcy or Chapter 13 bankruptcy immediately stops all bank levies. However, bankruptcy causes other problems because the bankruptcy filing remains on the debtor's credit reports for a minimum of 10 years. That ruins the debtor's credit for years, and could even affect future employment in certain positions requiring a credit check during the job application process.