A bank account levy, sometimes called a bank account seizure or legal garnishment, is a tool used by creditors to collect money from debtors, whereby a creditor can take funds directly from a debtor's account to satisfy the debt. To levy a debtor's account, the creditor typically must have permission to do so either from a court or by virtue of a law that permits the creditor, particularly if it is a government agency, to levy the account. The process for completing a bank account levy likewise depends on pertinent laws, but often involves the creditor notifying the bank that it has the right to seize the assets in the account. However, many places have laws that also protect consumers from unfair or illegal bank account levies and allow debtors to protect all or part of their assets.
In the United States, a bank account levy is often a last resort tactic in the credit collection process. If a creditor has not been able to work with a debtor to arrange a payment plan, the creditor may decide to sue the debtor in court. Once the creditor gets a judgment, it will attempt to collect the judgment using all legal means, which often include wage garnishment and a bank account levy. The laws governing bank levies vary from state to state, but the creditor may be able to freeze the account prior to actually removing any funds.
Debtors are protected from having all their money seized in a bank account levy by both federal and state exemption laws. Money from some sources, such as Social Security or unemployment benefits, is generally exempt from being seized by a creditor in a bank account levy, but the debtor is responsible for identifying these funds to the creditor, the bank, and possibly to the court. If the funds in the account are co-mingled with other, non-exempt funds, the debtor can have a more difficult time protecting his or her money. In some states, such as New York, a portion of a bank balance may be exempt from seizure even if those funds are not from an exempt source.
United States law occasionally allows a bank account levy to take place without a court order, such as when the debt is unpaid taxes, an unpaid student loan, or unpaid child support. In such cases, the debtor must still be informed of plans to impose a bank account levy and given instructions for challenging the levy or informing the bank and creditor of exempt funds in the account. In the case of an IRS levy, the IRS will freeze the debtor's account for 21 days before removing funds.