If you have unpaid taxes or amounts owed to creditors, the court may allow them to withdraw funds directly from your bank account through a bank levy, leaving you unable to access your money. Fortunately, there are ways to navigate challenging financial situations, unfreeze your account and protect your money. This guide explores how bank levies work, explains the different ways to stop a bank levy and answers common questions about them.
What Is a Bank Levy?
A bank levy is a legal action a creditor or debt collection agency might enforce against a client who hasn’t paid their due amounts. The creditor will typically need to file a debt collection lawsuit against you to get a court order stating how much you legally owe. The creditor will then provide your bank with the levy documents so that your bank account can be frozen.
This prevents the account owner from withdrawing funds from the account and allows the creditor to take funds directly from the account to satisfy the unpaid balance due. Government agencies, like the IRS, don’t need court approval to issue a bank levy, but they can’t issue a bank levy without notice. The IRS will send a notice about its intent to levy before serving an actual tax levy on a bank account.
Can a Bank Levy Take All Your Money?
While the specific amount of money creditors will take depends on how much you earn, creditors are only allowed to take a maximum of 25% of your weekly income after necessary deductions. Creditors may be unable to collect payment if your wage is less than 30 times the minimum wage each week.
How to Stop a Bank Levy on Your Bank Account
If you’re dealing with a bank levy and agree that you owe the amount requested, here are a few suitable strategies for different situations:
If you have an active bank levy: You can stop the bank levy by paying the amount in full. If you have the means to provide the payment, contact your creditor to set up a payment arrangement and release the levy.
If you don’t yet have an active bank levy: If you’re facing financial difficulties, an effective strategy is to reach a settlement with your creditor. This involves informing them of your financial hardship and negotiating with them to pay a reduced amount of the total balance to clear the debt.
If you cannot pay the debt: It may be beneficial to file for bankruptcy to stop the bank levy. This will discharge most types of debt, but it will also impact your finances in other ways, such as lowering your credit score. After you file for bankruptcy, creditors will have to stop collections activities while the case is ongoing.
If the debt is several years old: Creditors have a limited time to collect unpaid balances according to the statute of limitations. Make sure to check the timeline based on your type of debt and state to see if your creditor is legally allowed to file a lawsuit for unpaid amounts.
If you can’t pay the full amount before the court date: Consider setting up a payment plan to pay off the balance in manageable installments.
How to Stop a Bank Levy When You Disagree With the Debt
You might disagree with the debt if the amount is incorrect or the funds in your account are part of an exemption. In these cases, you may stop a bank levy by challenging the creditor’s action in court or filing a claim of exemption. It’s important to compare the money you actually owe to the notice you receive to record errors in judgment accurately. You’ll then dispute its validity in court with proof to get the levy vacated or dismissed.
Making a Claim of Exemption
There are particular situations, called exemptions, in which creditors cannot take your money. These are funds from particular government benefits, including:
Veterans Affairs benefits
Supplement Security Income benefits
Federal student aid
Social Security
Military survivor benefits
Benefits from the Office of Personnel Management
Federal emergency disaster assistance
Child support payments
Federal, civil service or railroad retirement benefits
401(k) and IRA pensions and retirement income
Additionally, though they’re not classified as income, disability, workers’ compensation, welfare and unemployment benefits are exempt.
You have 10 days from the date your account was levied to file a claim of exemption. If the bank levy was received by mail, you have an extra five days to file. Making a Claim of Exemptions involves the following steps:
Fill out the relevant forms: You’ll need to complete two forms — the Claim of Exemption and a financial statement. The financial statement should support your claim by showing how the funds cover basic family needs.
File the Claim of Exemption: File the original Claim of Exemption and a copy to the levying officer. They’ll keep the original form and mail the copy to the debt collector or judgment creditor.
See if the claim is approved: The judgment creditor or debt collector must respond within 10 days. If you don’t receive a response, it means your claim was granted, and the levying officer will return your funds.
Reply to the opposition: If you receive a response to your claim, it means it was opposed. The response may include a “Notice of Opposition to Claim of Exemption” and a “Notice of Hearing on Claim of Exemption,” which explains why the claim was opposed. You must reply at least five court days prior to the hearing to clarify facts and evidence. If going to court is still necessary after this, you’ll need to prove in court why you qualify for an exemption and can’t afford the money to be taken.
How Long Does It Take to Release a Bank Levy?
The timeline for stopping a bank levy varies depending on the strategy you choose. Some estimations of key timelines include:
Paying in full: Around 30 days
Getting it vacated: 180 days after court judgment
Filing for bankruptcy: Several months, although the levy will be suspended during this period
Setting up a payment plan: Less than a month
Reaching a settlement: Several months
Exploring the statute of limitations: Several months
How to Avoid Bank Levy Issues in the Future
Here are a few ways to prevent bank levies going forward:
Respond to IRS letters and creditor communications: Keep the IRS and your creditor updated on your current situation and what you can manage. Negotiating a change in payments early and proactively seeking solutions can help you avoid bank levy issues.
Pay your debt: Stay on top of your monthly bills and ensure you make the minimum monthly payments to prevent them from building up or escalating.
Discuss settlement options: Consider options like settlement or filing for bankruptcy. A tax professional can help you devise a specific plan that works for you and the creditor.
Establish an installment agreement: An installment agreement offers a way to repay the amount over an extended period. This is useful if you can only pay part of the balance each month.
Why Trust Polston Tax
If you’re looking for a tax professional who can help you stop your bank levy, Polston Tax is a tax resolution company that may be able to help you through the process. Some of the key benefits of working with us include:
Personalized approach: You’ll start with an initial hour-long consultation with one of our case or tax strategists. They’ll review your financial situation and due payments to provide you with the most beneficial service and strategy options for your unique circumstances.
Direct communication with IRS or creditor: After deciding on a suitable solution that benefits you best, we take over your case and handle all communications with the IRS or your creditor. We’ll negotiate on your behalf and resolve your unpaid tax issue.
Access to a team of knowledgeable professionals: We provide our clients with a dedicated team of levy tax professionals to provide a suitable resolution outcome. This team includes a tax attorney, accountant, case manager and any other relevant professionals.
Cost minimization: As we help you minimize your amount owed, we’ll look for ways to eliminate interest and penalties.
Receive Help With Your Bank Levy With Polston Tax
While there are various ways to stop a bank levy, choosing the most beneficial strategy for you will depend on your unique situation. At Polston Tax, our goal is to alleviate your situation by choosing a strategy that will work best for your specific circumstances.
