Key takeaways
- A creditor places a bank levy on your account if you have fallen delinquent on your payments.
- A bank levy results in the creditor legally taking funds from your account.
- In order to fight a creditor’s account levy, the best strategy is to contact a professional who is familiar with this type of legal proceedings in order to speak on your behalf.
- Once you finish this process and are able to open a new bank account it is best to arrange for automatic payments to avoid similar issues in the future.
If you fail to make payments, creditors will try to recoup the funds you owe them. In some cases, they may take legal action and request a bank levy. This may freeze your bank account and give creditors the right to take the funds directly from it.
You won’t be able to access the money in your account until the debt is paid. If you find yourself in this situation, you may wonder what you can do. While your options are limited, there are some ways you can fight a creditor’s account levy.
8 ways to fight an account levy
You might be able to prevent or limit levies to your account. To discuss options, contact an attorney who’s familiar with this type of law in your area. From there, there are some approaches you can try.
1. Prove that the creditor made an error
Creditors make mistakes all the time. If you don’t believe the debt is yours or if you think the amount is incorrect, send a debt validation letter via certified mail. The letter should state that you dispute the validity of the debt and would like documentation that verifies it.
If you have already paid off the debt, find proof that supports your case. This can be in the form of a letter, receipt, or statement you received once you made your last payment. You can fight the levy if you don’t owe the money.
2. Negotiate with the creditor
The debt-collection process can be time-consuming and expensive, so lenders may prefer working with you over levying your bank account. An attorney or credit counselor can help facilitate these negotiations.
Depending on the lender, your options may include a modified payment, a lower interest rate, or a hardship program. If the creditor plans to levy more funds, negotiations may prevent it. Plus, negotiating gives you some control over the situation.
3. Show that you’ve been a victim of identity theft
If someone else fraudulently applied for the debt in question, then you’ve been a victim of identity theft. You can fight the levy by proving that someone else received the funds.
An identity theft report is a great way to prove you’ve been a victim of identity theft. To get one, submit a theft complaint to the Federal Trade Commission (FTC) via IdentityTheft.gov. Then print the report called “Identity Theft Affidavit.” Next, file a police report and attach it to the Identity Theft Affidavit.
4. Check the statute of limitations
Creditors have a certain time frame, called the statute of limitations, to legally collect debt from you. Check your state and local laws for the specific type of debt. Reach out to a lawyer if you’re unsure or need clarity. If this time frame has passed, your creditor might not be allowed to collect money from your bank account.
5. File bankruptcy
You may be able to recoup some or all of the money if you file for bankruptcy. This option varies from state to state and should be a last resort. If you are able to “exempt” those funds that were levied from your bank, the creditor could be forced to return the money to you. A bankruptcy attorney in your area will be able to tell you whether some, none or all of the funds could be returned after you file bankruptcy papers.
6. Contest the lawsuit
Contesting the lawsuit could be impossible, because the creditor’s judgment could be too old to contest. However, if you were not properly served, you could have the judgment set aside. This can be done without professional legal help, but it is a complicated process and will not ensure that the funds will be returned. Therefore, it’s a good idea to consult an attorney.
7. Stop using your bank account
If you can’t file for bankruptcy and the judgment can’t be overturned, then you will be unable to keep funds in your bank account. The creditor could continuously levy your bank account until the balance is paid in full. You could be relegated to using cashier’s checks and money orders to pay your bills.
8. Open a new account
While your levied account is frozen, you can open a new one. Be sure to move any automatic bill payments that you’ve set up to the new account so that you don’t miss any payments and fall deeper into debt.
Next steps
A drained bank account is the last thing you want to see. If a creditor has levied your funds, it’s important to understand that you might be able to recoup your money. If you think the creditor made an error or you’ve been a victim of identity theft, reach out to the lender and explain the situation. Otherwise, a lawyer or a credit counselor can help you with the next steps.
FAQs
Try to negotiate with the creditor, suggesting either a repayment plan or a settlement offer for less than what you owe. Check if the debt is beyond the statute of limitations. If the debt is so old that it's beyond the statute of limitations in your state, you can dispute the bank levy and have it removed.
How do you fight levy? ›
A bank levy results in the creditor legally taking funds from your account. In order to fight a creditor's account levy, the best strategy is to contact a professional who is familiar with this type of legal proceedings in order to speak on your behalf.
How many times can a creditor levy your bank account? ›
Bank Levy by Creditors
A bank levy is not a one-time event. A creditor can request a bank levy as many times as needed until the debt has been satisfied.
How do you get a levy off your account? ›
Contact the IRS immediately to resolve your tax liability and request a levy release. The IRS can also release a levy if it determines that the levy is causing an immediate economic hardship. If the IRS denies your request to release the levy, you may appeal this decision.
How can I protect myself from bank levy? ›
Tell the court how it will be impossible for you to pay for your family's basic needs if the money is taken from your paycheck. The other side may say it is not true. Bring evidence that shows you can't afford to have the money taken. This might be your paychecks, bank statements, and bills.
Can you negotiate a bank levy? ›
Try to negotiate with the creditor, suggesting either a repayment plan or a settlement offer for less than what you owe. Check if the debt is beyond the statute of limitations. If the debt is so old that it's beyond the statute of limitations in your state, you can dispute the bank levy and have it removed.
Can I open another bank account if mine was levied? ›
Bank accounts in states with favourable wage garnishment and bank levies protection may be necessary so that if your creditor freezes your account, all you have to do is create a new account elsewhere.
What states don't allow bank levies? ›
Bank garnishment is legal in all 50 states. However, four states prohibit wage garnishment for consumer debts. According to Debt.org, those states are Texas, South Carolina, Pennsylvania, and North Carolina.
How much money can a creditor take from your bank account? ›
In other words, a creditor can garnish up to an amount that is the lesser of either 25% of a debtor's weekly earnings or 50% of the amount by which the debtor's earnings exceed 40 times the minimum hourly wage, and there is no minimum balance that a debtor's deposit account must remain after being garnished.
Can debt collectors see your bank account balance? ›
Collection agencies can access your bank account, but only after a court judgment. A judgment, which typically follows a lawsuit, may permit a bank account or wage garnishment, meaning the collector can take money directly out of your account or from your wages to pay off your debt.
You can pay your debt in full which would reverse your garnishment or levy immediately. If you aren't able to pay your debt in full, you can make an offer in compromise and agree on an amount with the IRs.
What is the difference between a levy and a garnishment? ›
Garnishments and levies are collection tools creditors use to seize an asset or stream of income that belongs to you. For the most part, "levies" take money from your financial accounts, such as bank accounts, while "garnishments" take your wages. However, creditors can't just take all of your money.
Is a bank levy a one-time thing? ›
Bank levies are one time actions
The bank only takes out money one time for each levy. They do this when they get the levy. If you want to try to take money again you'll need to do another levy.
How do I challenge a bank levy? ›
The fastest way to stop a bank levy is to pay the balance in full. Once you pay the balance, the creditor can no longer levy your account, but unfreezing your account may take extra time. If you have the funds to pay in full, contact your creditor to set up the payment and release the levy.
What type of bank account cannot be garnished? ›
Some sources of income are considered protected in account garnishment, including: Social Security, and other government benefits or payments. Funds received for child support or alimony (spousal support) Workers' compensation payments.
How do you object to a bank levy? ›
Templates and Forms. If you receive notice from your bank that funds have been withdrawn due to a court judgment (“levied”), and you want to object, act fast. You have 15 days (20 days, if you were served by mail) to file a Claim of Exemption.
How do I dispute an IRS levy? ›
On the Form 9423, check the collection action(s) you disagree with and explain why you disagree. You must also explain your solution to resolve your tax problem. Submit Form 9423 to the Collection office involved in the lien, levy or seizure action.
Can the IRS reverse a levy? ›
If the levy is creating an immediate economic hardship, the levy may be released. A levy release does not mean you are exempt from paying the balance. The IRS will work with you to establish payment plans or take other steps to help you pay off the balance.
How to respond to a notice of levy in California? ›
The debtor may object to the levy by filing a claim of exemption within 10 days if you were served personally. You have 15 days to respond if you were served by mail. Proceeds from the Sheriff's sale are used to pay: Money owed to the original lender if there is one.
How do I stop a bank levy in California? ›
The bank provide you with a Notice of Levy (EJ-150) to let you know. The bank or sheriff will hold the seized funds for up to 20 days, allowing you the opportunity to seek to stop or reduce the levy by filing a Claim of Exemption (EJ-160).
