What Is a Bank Levy and How Can I Avoid One?

Have you ever been behind on payments? Bank levies will give your creditors a powerful tool to collect their dues from you. A bank levy is actually a legal action that allows owed money to get taken directly from your bank account.

Once set in motion, your bank will freeze the funds in your account and then send the amount you owe to your creditors to settle your debt.

The creditor must provide your bank with a proof of a court ruling against you before the bank can freeze your account. In some situations, your bank account may survive the freeze, especially if the only funds in your account are from federal benefits.

However, some creditors do not need any court ruling; these include government agencies that collect state and federal taxes as well as student loans and child support. Learn more about how to avoid bank levies in this guide.

Don’t Ignore Debt Collectors

Once your bank account gets frozen, you’ll still suffer certain negative consequences even if you manage to remove the bank levy. For example, all the checks you wrote before the freeze won’t be cleared, and you’ll also not have access to the funds in your account.

To avoid this, pay off your debts on time. Don’t ignore the debt collectors when they come knocking. If you don’t have enough cash to clear the debts, you can agree with them and come up with a manageable payment plan to give yourself more time to settle your debts.

Many creditors, even the federal and state taxing authorities, will be more than willing to work with you on this.

Have Government Assistance Funds Deposited Directly to Your Bank Account

If your bank receives a garnishment or an attachment order, it will review the funds in your account to find out if a part of them is related to government assistance income such as veterans or social security benefits. These kinds of funds will be spared from the freeze.

Other benefits covered by this rule include:

  • Unemployment and sickness
  • Federal railroad retirement
  • Supplemental Security Income
  • Federal Employee Retirement System
  • Civil Service Retirement System

If the assistance is deposited directly to your account, the bank will not have the authority to freeze them. But if you receive it in the form of checks then the funds can get frozen.

They will stay frozen until you prove or claim the right to have the money released. In short, to avoid the bank levy, switch all government assistance to direct deposit.

Maintain Your Social Security Funds at the Same Account

Your social security funds enjoy special protection, especially if you have them deposited directly to your account. They will retain their protection even after you receive them. However, if you transfer them to a different account or if you get them mixed up with other funds, they may lose this special protection.

It would be very difficult for you to prove that the funds are from social security. The secret to avoiding these funds from being frozen is to have them stay in the account where they were initially deposited.

Know Your State’s Exemptions

Each state has a set of laws that protect certain incomes or property from being claimed by creditors to settle debts. Try to learn these laws so you can be able to ward off creditors who may want to claim your income or property.

When you have both exempt and non-exempt funds in your account, use the non-exempt funds first to pay your bills so that only the exempt funds can remain in your account.

To Avoid a Bank Levy, Keep Separate Accounts for Exempt Funds

If possible, you can keep a separate account for funds that qualify for an exemption. If this case, if an attachment occurs, you can easily have the funds released by showing that the account only contains funds that qualify for an exemption.

If you have in one account some funds that qualify for an exemption and some that do not, you may have a hard time proving to a judge that the frozen funds should qualify for an exemption.

You will have to trace the source of the funds to prove your case. This is a daunting task and it may take a very long time.

Don’t Keep Money in a Bank You Owe

Keeping your money in a bank that holds your checking or savings account makes it easy for them to use your savings to offset any amount you owe them.

If you fall behind on your payments and as long as you owe some money to the same bank that holds your savings or checking accounts, they will not need any court order or judgment to do this.

To be safe, it is better to keep your funds in a bank that you don’t owe any money. While it is a common practice for many businesses to keep accounts with banks which provide them with lines of credit or bank loans, it is not wise to keep personal savings in such accounts.

Talk to an Attorney in Case of an Issue with a Bank Levy

It is unfortunate that once your creditor has made a request, your account will immediately get frozen as your bank reviews your case. Neither your bank not your creditor will notify you that the levy has been effected. You might only realize when you try to make some transactions or withdrawals.

If you feel that your creditor has not acted fairly, you have every right to dispute the bank levy. This can reduce the amount your creditors can claim from your account or it may stop the levy altogether. If you don’t take any action, the creditors may sweep your account clean, leaving you with the stress of keeping your business afloat.

You may not be in a position to handle this situation on your own because appealing a levy is a complicated process. That’s why if you are faced with a problem, you should consider talking with an attorney.

They can help in protecting your money and other property from creditors. If you want to learn more about taxes, credit, and other financial issues, you can visit our blog.

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