Sometimes even the best financial planning cannot prevent a situation where you fall into debt unexpectedly. Whether unexpected medical bills have left you with overwhelming debts or your family has had to rely on a credit card to stay financially afloat after a spouse’s sudden unemployment, life happens.
Even more frightening is that your creditors will not stop their debt collection efforts even if you have not bounced back from that financial situation. When this situation escalates, your creditor could file a lawsuit against you and request a levy on your bank account(s). When approved, the bank could freeze the targeted bank account and transfer the necessary money to your creditor’s bank account to settle your debt.
If you are wondering what steps to take when that happens, this article is for you. Although you have limited options, you can challenge your creditor’s bank levy in various ways to protect your financial “health.”
What is a Bank Account Levy?
A bank account levy is a lawful action that allows private creditors and any other lender to take money directly from your bank accounts. Once issued, the bank levy will freeze your account and permit your lenders to withdraw the funds necessary to clear off your unpaid debt.
In a few words, a bank account levy is a debt collection tool creditors or lenders can use to retrieve the money their debtors owe them if other debt collection efforts are unsuccessful.
How a Bank Account Levy Works
A bank account levy is typically a month-long process, meaning you could avoid the bank levy if you understand these timelines. The creditor could begin this process after you miss one or two payments, depending on the agreement you signed with them. To recover their money, your creditor could sue you and prove that you owe him/her money.
When this happens, your creditor should serve you with a Summons and Complaint to inform you that he/she could levy on your account soon. If your creditor receives a verdict against you, he/she will have stronger debt collection tools, including a bank levy. To request a bank levy, your creditor must serve your bank with proof of the court’s judgment against you.
The bank will then freeze your funds subject to the levy and transfer the required money to your creditor’s account to clear your unpaid debt. This freeze will last for about twenty-one (21) days. During this period, you will have no access to the account until your creditor receives all the money owed.
Even when you refuse to give your creditor information about your bank accounts, he/she could find it anyway through any of the following ways:
- Prior payments – The creditor can check your past payment records for the debt to know your account details.
- Credit applications – Debt collection agencies often report defaulted debt to credit agencies, and your creditor could ask them for your past credit applications to know your bank account details.
- Skip tracers – Debt collection agencies can hire skip tracers to help them track you down and contact you about the defaulted debt.
In a few words, all your bank accounts are at risk of being levied once your creditors receive a judgment on his/her lawsuit against you.
It is worth noting that government agencies like the Department of Education and the Internal Revenue Service (IRS) do not require a court’s judgment or verdict to place a levy on your bank accounts. That will also be the case when the federal government wants to collect student loans that you owe. However, like private creditors, they should give you enough prior notice before they do so.
For instance, the IRS will mail you a notice of their intent to levy your bank account at least one month before serving a tax levy document to your bank.
The Procedure That Your Creditor Will Use to Levy Your Bank Account
To begin levying on your bank account, your creditor will prepare and file a Writ of Execution (EJ-130) with the court that granted him/her the verdict. This official document contains details about the county where the targeted bank account is and the amount the creditor intends to withdraw to clear your unpaid debt, including court costs and attorney’s fees.
Once the judge issues an EJ-130, this document will go to the county sheriff, where your bank is, and typically to a process server, who will serve a duplicate of the EJ-130 and the EJ-150 to the bank. When the bank receives this paperwork, it will freeze all the funds in your account up to the maximum amount you owe.
You will receive a notice about the levy, specifying which account(s) your creditor is levying to satisfy the court’s judgment.
How to Stop a Bank Account Levy
If you do not take action after receiving a Notice of Levy, there will be no limit to the amount your creditor can withdraw from your account. Fortunately, there are a few ways you could stop a bank levy, including:
Filing a Claim of Exemption
As mentioned in the previous sentence, when a creditor levies your account to satisfy his/her court judgment, the court will freeze all the funds in your bank account to pay your unpaid debt. During this period, you can file a claim of exemptions to have a certain amount returned to you. Below are the steps for filing a claim of exemption:
a) Consider Whether the Funds in Your Account are Exempt
There are exemptions to the funds a creditor can withdraw from your account to satisfy his/her court judgment. Below are examples of funds exempt from levies:
- Social security benefits.
- Unemployment benefits.
- Disability insurance benefits.
- Seventy-five percent of income earned from your employment in the last thirty (30) days.
- Veterans’ benefits.
- Any money that is necessary for basic needs.
- Supplemental security income.
- Public retirement benefits.
- Student loans.
- Workers’ compensation benefits.
b) Complete the Necessary Forms
When you find out that you have funds exempt from levying, you should fill out and complete the following forms within the next ten (10) days of the levy:
- A claim of exemption form.
- Declaration.
- Financial statement.
Once you complete the necessary forms, you should make three copies of each and take them to the sheriff’s office listed in the EJ-150.
c) Attend the Scheduled Hearing
The court could schedule a hearing to determine whether the filed claim of exemption is valid. However, this happens only when the creditor objects to your claim. When your creditor fails to object to your claim, the levied amount of money will return to you.
During this hearing, the court will review your claim to see whether you have the right to claim the exemptions. Typically, at the end of this hearing, the judge presiding over the case will either:
- Grant your claim and have the “exempt” funds returned to your account.
- Deny your claim and allow the creditor’s bank levy to stand.
It is worth noting that even if the judge grants your claim, it will only apply to the specific funds your creditor has levied. That means your creditor can still levy any additional bank accounts you have to recover the unpaid debt.
Declare Yourself Legally Bankrupt
You are likely aware that Chapter 7 (liquidation) bankruptcy and Chapter 13 (reorganization) bankruptcy could solve your debt issues. When you file for bankruptcy, an automatic stay will go into effect immediately, stopping all debt collection efforts by your creditors. That means when you legally declare yourself bankrupt, before your creditor notifies you about the bank levy, he/she can levy your account.
Although it is a temporary relief, it allows the court to intervene and determine which properties the creditor can take to satisfy your unpaid debt. Declaring yourself legally bankrupt is also a viable way to have the debt causing the bank levy discharged. Even if your creditor has levied money on your bank account, it is possible to have the money back once you file for bankruptcy.
Additionally, declaring yourself bankrupt is vital because your creditor is not limited to your primary bank account only, meaning he/she could levy other bank accounts to settle your due debt. However, once you file for bankruptcy, the automatic stay will prevent him/her from making any debt collection efforts, including levying your bank accounts.
A seasoned bankruptcy attorney can help you determine which assets and funds you can protect once you declare yourself legally bankrupt. Do not make the mistake of filing for bankruptcy without an attorney’s legal guidance and representation to increase your chances of achieving the best possible outcome for a fresh financial start.
Challenge the Lawsuit
Challenging the creditor’s lawsuit against you could be challenging because the court’s judgment is too old. However, if the creditor did not notify you of the suit as required, you could qualify to have the verdict or judgment set aside.
Although you can do this without an attorney, it would be in your best interest to retain the services of a skilled attorney to increase your odds of obtaining a desirable judgment.
Stop Using the Bank Account
When the court cannot set aside the creditor’s judgment, and you cannot declare yourself bankrupt, keeping money in a levied bank account is not wise because you will not have access to it. The creditor will levy all the money in your account, including direct deposits, to clear all the money owed.
Show That You Are a Victim of Identity Theft
If another person fraudulently applied for the debt in question, your attorney can help prove that you are a victim of identity theft and that another person received the money. An identity theft report could help prove this argument.
Check the Statute of Limitations
Creditors or lenders can only collect a debt within a certain time limit (often 4 to 10 years) after receiving a court judgment. This time limit is known as the statute of limitations. Once this time frame elapses, your creditor cannot levy your bank account(s) to collect your unpaid debt.
Open Another New Account
Since you cannot use a bank account when a bank levy is in place, opening a new account would be a brilliant idea. Remember to move automatic bill payments to this new bank account to avoid missing a payment and falling into deeper debt.
How Can A Bankruptcy Attorney Help if a Bank Levy is in Place?
Even if a bank levy is in place, it is not too late for you to hire an attorney. A reliable bankruptcy attorney can assess your financial situation to determine which bankruptcy chapter would work in your favor to stop the levy and gain access to your bank account.
The automatic stay you will receive once your attorney files for bankruptcy on your behalf will give you the peace of mind you need because your creditors will stop harassing you and making debt collection efforts.
Your bankruptcy attorney will advise you on other ways to seek relief from your overwhelming debt if declaring yourself legally bankrupt is not a viable solution for your unique financial situation. Ensure the attorney you hire is legally licensed, reputable, experienced, and accessible for the best possible outcome in your case.
Take Away Tips
A bank levy could make you fall into a cycle of debt that is difficult to overcome and damage your credit record. Once your creditor obtains a court judgment against you, he/she will do everything necessary to recover your unpaid debt. A bankruptcy attorney can assist you in determining the most appropriate and suitable way to clear your debt and stay on top of your finances.
Find a Bankruptcy Attorney Near Me
If your creditor is levying your bank account to recover a debt you owe, you should act as soon as possible to protect your assets and family. Whether you are looking for legal guidance to handle an immediate levy on your bank account or need broader solutions to help resolve your debts without a hassle, you can count on our attorney at Sacramento Bankruptcy Lawyer.
We invite you to call us at 916-800-7690, and our attorneys will help you determine if filing for bankruptcy would be an excellent idea for your unique financial situation.
