Bank Levy – All That You Should Know About It

IRS and other creditors use extreme measures like wage garnishment and bank levy for collecting outstanding debt. The procedure is the same for both. However, the laws for both are different. In this blog, we will guide you through everything there is to know about Bank Levies:

What is a Bank account levy?

A bank levy takes place when you owe money to a creditor and don’t pay them back. The creditor files a case with the court and if they win, they can withdraw money from the bank account for collecting on the outstanding debt. However, you will be given a certain amount of time for responding before the levy on a bank account starts.

What is the difference between a bank levy and a wage garnishment?

The bank account levy is when your creditor contacts the bank for freezing the account for getting the debt amount. A wage garnishment, on the other hand, is when a creditor gets their money back directly from your paycheck. A bank levy is worse than a garnishment because all the money in your account will be gone until the creditor gets the fill amount. However, there are federal laws in place for limiting the amount of money that can be taken from the paycheck.

Anyone to whom you owe money can use a bank account levy as a method for repayment. The Department of Education and the IRS are more likely to use this approach for debt collection. However, other creditors like lenders or child support recipients can also issue a bank levy against you. 

Government versus other creditor levies

For levying a bank account, a creditor has to go to the court and win the case against you for the owed amount. After they have received a judgment, they can try a collection action against you. If you don’t make any attempt to pay the money or make a payment arrangement with the creditor, they can issue a levy. 

Government agencies like the Department of Education and the IRS don’t have to go to court to levy bank accounts. They have the authority to do this on their own. However, by making a payment arrangement, you can avoid levies.

The collection process

Before the creditor can get a judgment against you in a court, they must have proof that they attempted to collect the outstanding balance. They can show documentation displaying the communication through mail or phone. Also, in some cases, creditors can take your account to a collection agency. The other option is seeking judgment for the remaining balance.  For this, they have to go to court. Here, the creditor will have to prove to the judge that you owe money to them. It is important that you show up in court. If you feel like you are not in debt or the amount is wrong, you can bring your evidence to the hearing.

If the court makes a judgment in favor of the creditor, they can take more aggressive actions for collecting the debt. You still have the option to negotiate with the creditor. In the case of the IRS, you have tax resolution options like the installment agreement, offer in compromise, etc. 

Then, the creditor will get a writ of execution from the court granting the judgment against you. The summon will contain the information of the debtor, the owed amount, and the bank account details. The bank and the creditor will let you know about the judgment. You will have some time to negotiate with the creditor before the bank levy starts. 

How long do bank levies last?

As long as you owe money to the creditor, they can levy bank account. Even if you don’t have any money in your account, the creditor can come back when you put more money into the account. In case you are going through a financial hardship, bank levies will worsen your situation. Your bank account transactions will also be affected because of the following:

  • Multiple accounts made by the creditor for getting money from the account.
  • If there are outstanding checks pending for other bills, your checks might bounce.
  • Insufficient funds can lead to more fees from the bank and the creditor.

How can you stop bank levies?

Even during the levy process, you have an opportunity to stop the levy on a bank account. This can be done for the following cases:

  • The error made by the creditor
  • Your identity was stolen
  • Expiration of the statute of limitations
  • The creditor didn’t send enough notices
  • You have declared bankruptcy
  • Created an agreement with the creditor
  • You have income exempted from the bank levy

What happens during an IRS Bank Levy?

You will receive a “Notice and Demand/Payment” from the IRS. This is a notice where the IRS requests the money you owe them. The amount will be including the back taxes, penalties, interest, and other fees. You will have time to contact the IRS and make the full agreement or formulate a payment arrangement. If you fail to do either of them, the IRS will send you a 30-day levy notice. This is named “Final Notice of Intent to Levy and Notice of Your Rights to a Hearing.”  You will have 30 days for responding to the IRS. During this time, you can resolve the back taxes with the IRS or request a hearing. During the hearing, you will be given an opportunity for disputing the owed amount. Here are the reasons for which you might want a due process hearing:

  • You believe the tax debt was paid.
  • You were taxed during the bankruptcy period.
  • An error in the tax assessment.
  • The statute of limitations has expired.

If you don’t request a hearing, you can still work out with the IRS. You will have the following options for stopping the levy on a bank account:

  • Paying the debt in full.
  • Entering into a payment agreement.
  • Claiming financial hardship.
  • Requesting an offer in compromise.

If you need help with the hearing or resolving back taxes with the IRS, you need to get help from the professionals. Hiring a tax relief expert will help you get through the whole process. Platinum Tax Defenders is a tax resolution service that can help taxpayers avoid the bank levy. Our tax relief experts are qualified and experienced to guide you through any tax-related issues. Contact the Platinum Tax Defenders for a consultation today!