What is a Bank Levy?

Disclaimer: We are not qualified legal or tax professionals and are not giving advice. Always speak with a qualified professional before making any legal or financial decisions.



Discovering a bank levy on your account can be a startling experience, leaving you with more questions than answers. A bank levy is a drastic but legal measure creditors might take to freeze your bank account, directly seizing funds to settle unpaid debts.

This guide aims to teach the process of a bank levy, from understanding exactly what it entails to navigating your options to potentially prevent or respond to one. Empower yourself with knowledge to protect your financial well-being against unexpected levies.

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What Exactly is a Bank Levy?

A bank levy, sometimes referred to as a banking levy, in its core meaning, indicates that a creditor or debt collector has legally informed a financial institution that you should no longer have access to the funds in your bank account. Essentially, the money now belongs to the judgment creditor.

You might be wondering, how a bank levy works. Typically, to have a bank account levy, judgment creditors generally must go through the court system legally.  Typically, to have a bank account levy, judgment creditors generally must go through the court system legally.

There is also creditor garnishment, bank account garnishment, or wage garnishment. This means that part of your wages or salary is paid directly to your judgment creditors. The garnishment process is also a court judgment. The only entities that can levy or freeze your bank account without going through the court system are federal and state governments for things like back taxes and unpaid child support.

What is a Bank Levy Judgement?

A bank levy judgment is a legal decision rendered by a court that grants a creditor the right to seize funds from a debtor's bank account to satisfy an outstanding debt. This judgment is the culmination of a legal process initiated by the creditor, which involves presenting evidence of the unpaid debt to the court. Once the court issues a bank levy judgment, it effectively acknowledges the creditor's claim as valid and enforceable.

How Does Your Bank Account Get Frozen?

To have a bank account levied, you must have a judgment against you for an outstanding debt or other legal issues like money laundering.

For non-governmental creditors, you should have received a summons. If you're unsure about the implications, it's crucial to understand whether a credit card company can sue you for unsecured debt. If you either lose the court case or ignore the summons, your bank account can be levied.

For more information on summons letters, click here.

Governmental agencies must send you a letter notifying you that your accounts are being levied.

What Happens When Your Bank Account is Levied?

Once your bank account is frozen, you cannot access your funds or take money out. Any checks you write on the bank account will bounce, and you will be charged NSF fees. You can not withdraw money or make transfers.

You can deposit money into that bank account, but that money may belong to the judgment creditor. Financial institutions will release the money to debt collectors after 21 days.

You will receive a letter explaining that your bank account is being levied, what to do to lift the levy, and addresses and deadlines to object to or challenge the levy. Respond promptly if you plan to fight the levy.

Bank Levies as a Taxpayer

If you are levied by the IRS, you will receive several IRS notices before you get the Notice of Intent to Levy. Always open all correspondence from the IRS. The IRS will not call email or text you.

To stop the bank levy, you must request a Collection Due Process (CDP) in writing. At this meeting, you can offer payment plans or "Offers in Compromise" to avoid the levy. If this fails, you can take your case to Tax Court. When dealing with the IRS, the services of a qualified attorney are recommended.

How does the IRS know if you have money in your bank account to seize?

The IRS had your previous tax returns and your Social Security Number. In addition according to the IRS.gov website, the IRS can seize and sell your vehicles, real estate, and private property to satisfy the tax debt.

How can you prevent your bank account from being levied?

The first and most obvious solution to not being levied is to keep on top of your finances. For more details on how to avoid a frozen or levied bank account, click here. If you're worried about wage garnishments, learn how to stop a garnishment.

Debt Collectors

If your consumer debt has gotten out of hand or you are missing payments, do what you can to resolve the issue. Talk to the debt collector and see if you can settle. You may need to consider debt relief options available like debt settlement or debt consolidation. Respond to debt collector demand letters and summons. If you're unsure about your rights, it's essential to understand the Fair Debt Collection Practices Act.

Get a free debt settlement consultation with no obligation.

Respond to debt collector demand letters and summons. The link above about summons letters will help here, and our debt relief blog is full of articles about getting out of debt and dealing with debt collection.

Tax Debt

Tax debt is a very serious issue. If you get a letter from the IRS, open it and deal with it. Ignoring letters from the IRS can lead to other issues such as your passport being seized so that you cannot leave the country.

If you have tax debt, talk to a tax lawyer or CPA for guidance.

How to appeal a bank levy if it's been placed on your account

If your bank account has been levied, there are some actions you can take. These include:

Opening a new bank account immediately and stop using the levied account

There are bank accounts that are harder to levy. We discuss them in How to Avoid a Frozen Bank Account. You can protect your incoming money and keep paying bills so as not to fall further behind.

Some money is protected as long as it is kept separate from other funds, including:

• Federal benefits like Social Security
• Unemployment Benefits
• Retirement Benefits
• Child support payments / Spousal Payments
• Federal benefits like Veterans’ Benefits
• Life Insurance Benefits
• Disability Benefits

Some bank accounts are protected. These include:

• Joint accounts - as long as the other person on the joint account is not named in your court judgment.
• Out-of-state accounts
• Trusts like domestic asset protection trusts

Proving that the creditor made an error

Creditors make mistakes all the time - in fact, in 2020 more than half of the consumer complaints to the Consumer Financial Protection Bureau were over contact about debts that were not theirs. Request a debt validation letter. Check out How to Dispute Collections and Win for more information.

Proving the debt is a result of identity theft

If this debt results from identity theft, you can fight the levy. To get an identity theft report, contact the Federal Trade Commission (FTC) via IdentityTheft.gov. You will then contact law enforcement and the court that levied the judgment.

Negotiating with the creditor

This usually works better before your bank account is levied, but you can try to negotiate after the levy. You may be able to negotiate a modified payment, a lower interest rate, or a hardship program. The general rule of thumb here is just to get the negotiation results in writing!

Checking the statute of limitations

Depending on when the debt went delinquent, it may be "time-barred" or not collectible under the state statute of limitations. You can not promise to pay or make a good faith payment after the statute of limitation has passed. This is a good time to contact a lawyer for help.

Contesting the lawsuit

Depending on the age of the lawsuit, you may be out of luck. If you can prove you did not receive proper notice, you may be able to get the levy stopped. If you want to contest the lawsuit, speak with a lawyer.

Filing bankruptcy

This may be an option, but it's a very complicated one, costs a lot of money, and is time-consuming. Always speak with a bankruptcy attorney when considering bankruptcy.

How to Prevent a Bank Levy

Taking proactive steps can help you avoid having your bank account levied in the first place. 

Here are some tips:

• Check your credit report regularly and dispute any errors - Mistakes on your credit report could lead to incorrect judgments.
• Stay on top of bills and debt payments - Don't let debts escalate to the point of legal action. Communicate with creditors early if you're struggling.
• Consider debt relief options- like debt settlement or bankruptcy before things escalate - Consulting a professional can help you take control of overwhelming debts.
• Build an emergency fund - Having savings helps you avoid missing debt payments if you face an unexpected expense or income disruption.

Taking preventative measures can help you avoid the serious consequences of a bank levy. Monitor your financial situation closely and act quickly at the first sign of trouble.

Can you get your money back if the levy is released or overturned?

Getting your money back after a levy is released or overturned is possible.

The IRS

By federal law, the IRS is required to release a levy, but you may still have to pay the tax debt, if:

• You paid the owed amount
• The collection period ended before the levy was issued
• Releasing the levy will help you pay taxes
• You have an Installment Agreement that does not allow for the levy to continue
• The levy can create an economic hardship, and the levy may not leave you with enough money to meet basic requirements
• The value of the property seized is more than the amount owed
• Releasing the levy will not hinder the IRS's ability to collect the amount owed

Other Creditors

Speak with an attorney. This may require legal action and a court order.

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