When a deficiency judgment is being taken out against you, the collector may use a bank levy—a method where your bank account is frozen and funds withdrawn to pay off a debt. A bank levy is different from a wage garnishment in that the levy doesn’t touch your wages unless it is deposited into your bank account.
Bank Levies are Legal
Despite the fact that bank levies can drain your bank account, resulting in bank fees and financial hardship for you, they are legal. You will be served a judgment notice stating that your account will be frozen, but sometimes a judgment is not needed by the collector in order to freeze your account. The most common case would be a state or federal authority freezing your account for unpaid taxes.
You Can Claim Exemptions
Even though your bank account is frozen, you can still have some funds or property exempt from the bank levy. By federal law, some funds are safe from the levy such as:
- Social Security and Supplement Security Income (SSI)
- Veterans benefits
- Student loan aid
- FEMA aid
- Retirement benefits
- Disability benefits
State law exemptions also vary by state and include more exemptions.
Bank Levies & Joint Accounts
If you have a joint account with a spouse or non-spouse, a bank levy will take funds from the account regardless. If you owe the debt and not your partner, you may be able to get it to where the collector cannot take more than half of the account’s funds. The caveat being, you have to be able to prove that half of the contributions came from your debt-free partner.
For spouses it can be a little more difficult to protect your spouse’s money as you may have taken out the debt jointly or it benefited you both. If that is the case, both you and your spouse share debt liability. The exception being, if your spouse has a separate account in their name, that account is safe.
Stopping a Bank Levy
If you have a bank levy on your account, you can stop it and regain access to your account. Depending on your situation, you may be able to get a:
- Bank levy reversal: If you can prove that you were never served the notice of the lawsuit that led to the levy, you may be able to get order reversed.
- Settlement negotiation: If you can settle with the collector before.
- Hardship plan: If the levy is causing undue hardship to the point to where you cannot afford basic living expenses like food, you can set up a payment plan and stop the levy.
- Partial payment plan: You can set up a monthly payment plan to pay off the debt over a period of time.
- Bankruptcy: Declaring bankruptcy will stop a bank levy, but should only be used as a last resort as it can damage your credit score and financial credibility.