How Does a Bank Levy Work?

If you have fallen behind on a debt payment and have been unable to satisfactorily reach an agreement with your creditor to bring your account current, your creditor may use several strategies to recover the debt you owe. Typically, the creditor will send collection letters and make phone calls to try to resolve the past-due status of your account. It may also use other strategies, including levying your bank accounts.

Levy Authorization

Before a creditor can levy your bank account, it must file a civil suit against you for the money you owe, usually through the municipal or magistrate court in your county. If you cannot show that you have already paid the debt or that the lawsuit is otherwise invalid, or if you simply do not respond to the lawsuit, the court will grant a default judgment to the creditor. Your creditor can then apply to the court for the authorization to place a levy on your bank account.

Bank Notification

After a creditor receives authorization from the court, it will typically send a letter to your bank demanding that the account be frozen and that all eligible funds be sent to the court for payment toward your judgment debt. The bank then freezes your account and forwards any non-exempt funds to the court. Depending on your state's laws, the levy may stay in place until the judgment debt is satisfied. This means that you can deposit money into the account but cannot make withdrawals or write checks against the balance until you have paid the judgment debt in full.

Debtor Notification

Most states require the bank or your creditor to notify you when the creditor has placed a levy on your bank account. However, you will typically not receive notice until at least three days after the levy is in place. States do not require notification before the levy is in place, because advance notice would give you the opportunity to move funds out of the account to prevent them from being sent to the court to satisfy the judgment.

Exemptions

Depending on state and federal laws, some funds in your account may be exempt from a bank levy. A creditor cannot take funds derived from Social Security benefits, disability payments, unemployment compensation or child support payments. Some states also impose a specific monetary exemption to prevent a judgment creditor from completely draining your bank account. For example, Ohio considers $400 of your bank account balance exempt from levy. Some states also allow a wild-card exemption, subject to a specific monetary limitation, which you can use to protect part of your assets from levy and garnishment.