Bank Account Levy

Bank account levy summary:

• A bank account levy or garnishment is when your bank allows someone to take money directly from your bank.

• Creditors can force your bank to freeze your account and hand over funds.

• You can dispute levies or settle with creditors to pay less.

Bank Account Levy Definition and Meaning

A bank account levy (or garnishment) is when a creditor legally seizes money from your bank account to cover unpaid debt. Your bank freezes your account, then pays the creditor what they’re owed. 

To levy your bank account, most creditors must sue you in court and win. An exception to this is the Internal Revenue Service, which can levy your bank account after a 30-day notice. Other entities that could levy your bank account without a court include:

• The Department of Education for unpaid student loans

• Your state for unpaid child support

• Your own bank or credit union if you have a loan in default with them

Key Components of a Bank Account Levy

Creditors, courts, law enforcement, and banks operate a bank account levy. 

Here’s how a bank levy usually happens:

1. Creditors sue over unpaid debt.

2. Courts grant successful creditors a court order to levy.

3. Law enforcement delivers levy paperwork to the bank.

4. Banks freeze your account(s).

5. You’re notified.

6. After a required waiting period, your bank sends your creditors the money you owe.

There is a brief window in which you can dispute a levy or work out a settlement. This is typically just before the levy—when the IRS levies, it sends a 30-day notice—or during the 10-21 days when your funds are frozen. Neither you nor your creditor can access frozen funds.

Bank Account Levy: a Comprehensive Breakdown

You typically receive notice of a levy in the mail. If you’re aware your creditors have sued you for unpaid debt, you may expect the levy. Otherwise, you might not realize there’s a problem until your bank won’t let you withdraw money from your bank account.  

You can’t access money with your bank account levied. The courts have already given creditors permission to seize your funds, or the IRS has already issued you a Notice of Intent to Levy. 

Even so, you’re not limited to sitting around and twiddling your thumbs.

What you could do: 

• Dispute. You could challenge the levy, through the same channel that authorized it. You can dispute a levy while your account is frozen—typically for 10 to 21 days. The goal of disputing is to prove that there’s a valid reason to stop the levy. That could be identity theft, errors in the process, that the statute of limitations has expired, or something else. You may want legal assistance to make your case.

• Negotiate. You could negotiate a payment plan or offer to settle with your creditor. Professional debt settlement companies typically can’t help with debt that's already the subject of a lawsuit. It’s also harder to negotiate a debt after the creditor already has a judgment against you. If you think a lawsuit is on the horizon, it’s a good idea to try to work out an agreement before the suit is filed.

• Pay. Paying the debt off completely will stop the levy.

• Claim exemptions. You could claim exemptions if all or part of your money is protected. Some kinds of income are safe from a levy, such as Social Security or SSDI payments, child support you receive, and money in a retirement account. 

• File for bankruptcy. You can file for bankruptcy, which stops most bank levies, at least temporarily.