Bank Account Levy

A bank account levy allows creditors and government agencies to seize funds from personal and business bank accounts to pay overdue tax debts, judgments, loans, and other legally collectible obligations. Understanding how account levies work, the types creditors can impose, and options to respond help minimize disruptions and financial damages when faced with this aggressive collection enforcement.

What is a Bank Levy?

A bank levy is a legal demand requiring a financial institution to surrender funds from a customer’s bank account to pay a third party debt like:

• Delinquent income or payroll taxes
• Overdue income-driven student loan payments
• Judgments awarded to creditors by courts
• State debts like unemployment overpayments

By serving banks with the levy, creditors can forcefully collect owed amounts directly from available account funds. Accounts impacted include checking, savings, CDs and money markets.

How Do Bank Levies Work?

The general bank levy process unfolds as:

1. Creditor files a levy with the state department of revenue identifying the taxpayer, banks, account numbers, and amounts owed.
2. State sends the levy notice to banks holding accounts of the indebted party.
3. Banks must freeze account balances up to the levy amounts upon receipt.
4. 21 days after receiving levies, banks must send surrendered funds from frozen accounts to creditors.
5. Remaining balances are unfrozen post-surrender minus any legal garnishment amounts creditors filed to continue collecting on.

This Bulk Transfer Method allows seizing lump sum assets or ongoing percentages as creditors specify in executed levies.

Types of Bank Levies Creditors Use

Common bank levy variations include:

Lump Sum Levy – Seizes a specified amount from account balances only once.

Ongoing Wage Garnishment Levy – Continually garnishes percentages of new deposits over time such as 25% until debt satisfied.

Joint Account Levy – Can capture an indebted party’s proportional ownership share of a jointly held account.

Early Intervention Levy – Aggressive pilot program in some states allowing very quick account seizures.

Review levy details closely to understand exactly what types creditors are enforcing against your assets across one-time and recurring actions.

Reasons Creditors Impose Bank Levies

Common events leading creditors to pursue bank levies include:

• Delinquent Tax Debts – Unpaid annual tax bills or settlement agreements going into default often trigger tax levies.
• Overdue Student Loans – Federal student loans utilize levies after being severely delinquent and failing rehabilitation attempts.
• Court Judgments – Plaintiffs winning lawsuits utilize levies to force payment of monetary judgments by courts.
• State Debt Collection – State governments levy for overdue obligations like unemployment benefit overpayments or Medicaid liens.
• Child Support Arrears – Family courts levy overdue child support exceeding set thresholds.

Collection Actions Preceding Levies

Before imposing bank levies, creditors must demonstrate reasonable efforts collecting debts using less severe tactics:

• Sending mailed notices and final demands for payment
• Attempting contact via phone calls and in-person visits
• Filing liens against property and other assets
• Garnishing wages if allowed in that state – Directly levying income sources

When previous actions fail to gain cooperation, creditors escalate to bank levies or property seizures forcing resolution of debts.

Receiving Notice of IRS Tax Levies

For IRS tax levies specifically, required notification includes:

• CP90/CP298 – Notice of Intent to Levy and Notice of Your Right to a Hearing after failed Installment Agreement attempts
• LT11/Notice of Levy – Final notice mailed after 30 days if no payment or response establishing remaining rights
• Form 668-A/-W – Issued to bank with levy instructions containing taxpayer information, levy purpose, and legal citations

Prompt responses to early notices can prevent assets from actually getting surrendered via immediate levies. But IRS communications clearly warn of impending account seizures if payments remain unresolved.

Contesting Wrongful Levies

If a levy contains material procedural errors or gets imposed wrongly, options to contest include:

Request a Collection Due Process Hearing – For IRS levies, taxpayers can petition for a CDP hearing within 30 days of receiving intent to levy or notice of levy filings. These administrative hearings allow explaining reasons the levy should be withdrawn, such as financial hardship exemptions or unresolved appeals.

Petition for Return of Property – Within 9 months after wrongful levy seizure, submit detailed Request for Return of Property asking the creditor to return amounts improperly levied, with documentation supporting your claim.

File Suit for Damages – Seek legal damages through civil action in U.S. District Court against creditors that recklessly pursue unjustified levies causing economic harm. Damages may include compensation for direct losses plus attorneys’ fees.

Avoiding Bankruptcy Due to Levies

If levies seize essential funds triggering a personal financial crisis, take proactive steps:

• Request emergency release of levy funds from creditors referencing hardship clauses and explaining severe impacts preventing meeting necessary living expenses. Some release enough funds temporarily to pay critical needs if genuinely convinced of impending insolvency risks.
• Ask lenders for forbearance temporarily suspending loan/credit payments until you regain financial footing. Demonstrate how missed payments impose added late fees creating a worsening cycle.
• Notify housing, utility companies and other creditors making payment arrangements supported by documentation of involuntary bank account seizures. Ask about applying security deposits and suspending shut-offs to allow catching up.
• If options fail and bankruptcy becomes unavoidable, consult attorneys to pursue Chapter 7 or Chapter 13 proceedings for protection based on documented financial distress. The bankruptcy process often halts active levies.

Thoroughly demonstrating how aggressive levies directly create situations of imminent insolvency can help buy time and regain financial stability.

Recovering from Account Levies

Begin repairing finances after levy dust settles:

• Get employer help adjusting withholdings to account for lost funds seized and increased tax obligations.
• Discuss repayment plans on remaining debts with creditors referencing hardships. Request waiving some penalties and interest given involuntary circumstances.
• Build up emergency savings cushion to withstand disruptions. Even small deposits help reserves recover.
• Notify credit reporting agencies by filing brief explanations on credit reports referencing any late payments caused specifically by the levied funds. Seek score protections.
• Consider credit counseling offering personalized recovery plans addressing multiple damaged financial areas together.
• Shift banking partially to online banks or credit unions where direct access aids recovery.

Closing Thoughts

Bank account levies delivering devastating news can be contested if improprieties surface. But for legally valid claims, cooperation on amounts owed usually provides the path forward given creditor rights enforcing judgments. Seek professional guidance responding. Providing convincing hardship evidence to justify releasing enough funds maintaining basic solvency works best. With time and diligence, financial lives can be repaired even post-levy. Learning lessons further strengthens resilience.