Three Things You Need to Know About Bank Account Levy
When you’re unable to repay your debts, it triggers a process that ends with the imposition of bank account levies. This is essentially the freezing of your bank account after a court order is issued.
Creditors are given the right to deduct the amount you owe them from your bank account without your permission. Until the creditor receives full payment, you won’t have access to your account or be able to make decisions about how the money in it is spent.
Fortunately, getting from one or two missed repayments to the stage of a bank levy being implemented is a months-long process. This gives you enough time to negotiate or agree on a way forward with the creditor that won’t end in you losing control of your bank account.
What can I do to avoid a bank account levy?
The only way to tackle the threat of a bank account levy is to negotiate with the companies or organizations that want money from you. Lenders are often inclined to arrange something with the person that owes them money. However, you need to be prepared to negotiate, and you have to stick by your word. If you default on a repayment, you’re going to find yourself in even more trouble.
If you’ve run into trouble with the IRS, you can also negotiate a deal with them to avoid a bank account levy. This could take the form of a repayment plan or an offer to settle the account for less than the actual amount.
The IRS exercises both options at its discretion, and having a tax attorney from Tax Fortress advise you on the best approach can be invaluable for your IRS hearing. You could be offered significant tax relief, allowing you to rebuild your finances instead of having the IRS seize control of your bank account.
Is all the money deposited into my bank account subject to a bank levy order?
The answer to this question is no. Before the bank can authorize the bank levy order, it should first examine your financial history to determine if you are receiving any federal monetary assistance. This includes Social Security, disability, and veterans’ benefits in addition to the railroad, civil service, and federal employee retirement money.
For example, if you get a Social Security benefit of $1,500 per month and disability benefit of $500, your total federal assistance amount is $2,000. The bank must to protect two months’ worth of these payments, meaning $4,000. If you have $4,700 in the bank, your creditors can only take funds from the difference between this sum and the balance. In this case, it would be $700.
As usual, though, terms and conditions apply. The money deposited into the account by the federal government cannot have been moved to another account. And if the bank levy relates to an amount owed to the IRS or arrears in child support payments, there is no protection offered.
What if the account is not in my name?
Creditors cannot collect money from you by imposing a bank levy on someone else’s bank account. However, the bank will monitor transactions to make sure you’re not using this as a tactic to hide cash assets.
Joint accounts create a different scenario. The money in the account will still be the subject of the bank levy, but the other account holder can get protection of some of the money by making a written application to the bank. There are several forms to complete so that the bank can determine what portion of the joint account belongs to the other account holder and therefore merits protection.