Bank Levy Regulations

A bank levy occurs when a creditor collects a debt you owe by withdrawing funds directly from your checking and savings accounts. Bank levies are often used by the IRS, but private creditors can take advantage of them as well provided they know where you work. Both the IRS and private creditors, however, must follow the laws when executing a bank levy.

Writ of Garnishment

In order to access your accounts, the creditor must provide your bank with a valid writ of garnishment from the courts. Although the IRS can obtain a writ of garnishment without filing a lawsuit against you, private creditors must win the right to levy your bank accounts in court. Only after winning a lawsuit can a private creditor request a writ of garnishment from the court. Writs of garnishment detail the amount you owe and provide legal proof that the creditor has the right to conduct a bank levy.

Freeze Period

Even with a writ of garnishment, a creditor cannot simply seize money from your bank accounts immediately. Your bank will institute a hold period---usually 21 days---during which it will "freeze" your accounts. The purpose of the freeze is to give you the opportunity to legally contest the levy before it remits the funds within your accounts to your creditor. During this time period, you can make deposits but not withdrawals.

Exemptions

Your bank must not seize and distribute to creditors any funds within your account that are exempt from such seizure under state and federal law. For example, the bank cannot freeze and the creditor cannot levy Social Security payments, unemployment or child support. You must notify both the bank and the creditor if your account contains exempt funds and provide the exact amount of the exempt funds present.

Account Release

If you return to court and successfully contest the judgment that originally resulted in your bank account being frozen, the court will overturn the judgment and revoke the creditor's writ of garnishment. The bank must then immediately release your funds. If the creditor is the IRS, however, a judgment is not required, and its lien attaches to all of your assets. Negotiating a tax settlement with the IRS, however, will result in your bank account being released.

Joint Accounts

Bank levies against joint accounts are treated differently depending on the state that you live in. Banks must honor state laws when allowing creditors to levy joint accounts. In some states, the entire amount present in the account can be seized, while in other states only half of the amount within the account is eligible for seizure. Aside from the fact that each account holder's funds are in danger of seizure, neither account holder can access funds during the freeze period.