Understanding Bank Levy Laws by State

Jill Bridges
Expert Contributor
Last Updated:
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Almost everyone has been in debt at some point in their lives. Whether it’s a car loan or a mortgage payment, debt is a fact of life for most people. However, if you find yourself unable to pay for your debt, it can result in serious consequences, including bank levies. Understanding bank levy laws by state can help you avoid those consequences.

When your bank account is levied, it can impact your financial stability by making it difficult to cover your normal expenses. It’s also possible that your debt obligations will increase. However, depending on the laws of the state where you live, you may have access to certain protections that might reduce the severity of a bank levy. Take a look at some bank levy laws by state so that you can understand your potential exemptions and protections when facing a levy.

Notices and Collection Calls

For most people, the most stressful issue related to debt is receiving notices and phone calls from debt collectors. If you’re behind on your payments, it can seem like you’ll never be free from collection calls. While there are certain limits on what debt collectors are allowed to say to you, dealing with a collector can be extremely unpleasant, particularly if they are insistent that you pay money you simply do not possess.

A federal law known as the Fair Debt Collections Practices Act (FDCPA) restricts what third-party debt collectors are allowed to say and do in pursuit of a debt. Regrettably, this law does not apply to original creditors.

Can You Be Sued?

A big worry for those in debt is that they will be sued by a creditor. Lawsuits are almost always stressful, and if you don’t have the money to defend yourself, the stress of these legal situations can increase. A creditor may sue you for unpaid debt for several reasons, some of which are easy to respond to and others that take a tremendous amount of effort to resolve.

Understanding Bank Levy Laws by State

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Even if you don’t have the money to pay your debts, some creditors will sue you as a matter of course. They simply respond to unpaid debt this way, regardless of your ability to make these payments.

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The amount you owe can also have a big impact on whether or not you will be sued. Creditors are much more likely to file a lawsuit if they are owed a large amount of money. However, even if your debt is relatively small, it’s still possible that you will be sued.

Your state’s laws related to debt collection will be a determining factor in your creditor’s decision to sue. Many states provide protections for those in debt, including the percentage of wages that can be garnished. If strong protections exist in your state, it’s less likely that your creditor will file a lawsuit.

Other factors that will influence your creditor’s decision to sue include the statute of limitations in your state and their research into your credit report. If the statute of limitations is about to expire, for instance, then it’s likely your creditor will move forward with a lawsuit. Also, if your creditor researches your credit report and finds that you have valuable assets, they may sue you.

If your creditor sues you and the judgment goes in their favor, then they will have the ability to levy your bank account.

What Is a Bank Levy?

A bank levy is a popular solution for creditors pursuing unpaid debt. After the creditor has received a lawsuit judgment, they can request a levy with your bank, which will freeze your account in order to provide the debtor with the money they are owed.

As you might imagine, having your bank levied can be very difficult financially. Until the levy is complete, all the funds in your bank account will be frozen. This means you will not be able to withdraw funds from your account, write checks, or use your debit card to complete transactions. The longer your account is levied, the more your bills will pile up, resulting in more debt.

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Bank levies can continue as long as your debt is unpaid, meaning you may not have access to your money for an extended period of time. In addition, there is no restriction on how many times a creditor can levy your account. Fortunately, many states offer protections that are meant to limit the impact of a bank levy so that you can continue to live your life while attempting to pay off your debt.

State Debt Collection Laws

If a creditor has won a debt collection lawsuit, they will be able to pursue the debt in a variety of ways, including levying bank accounts. That being said, some states have consumer-friendly debt collection laws. If you live in one of these states, then the scope of your bank levy can be limited, meaning the financial impact will be greatly reduced. On the other hand, if you live in a state without firm debt collection laws, then your bank levy can be very damaging.

Homestead Exemption

In some states, you may be protected by something known as a homestead exemption. If you own a home and lose a debt collection lawsuit, this exemption can help protect your property. States that have a homestead exemption restrict the amount of equity that can be pursued in a debt collection lawsuit. In states with a strong homestead exemption, the entire equity of your home may be protected.

Exemptions for Vehicle

The equity that you have in your automobile can also be protected in certain circumstances. However, these protections only extend to a single vehicle and only up to a certain amount. If you want to know how much of your vehicle equity is exempted from debt collections, simply subtract how much you still owe on your automobile from the current value of the vehicle.

Bank Account Limits

Depending on the state where you live, only a certain amount of the funds in your bank account will be subject to a levy. In states that have instituted these protections, creditors will only be allowed to take a certain percentage from your account. These protections are designed to prevent you from being completely financially ruined when facing a bank levy. Unfortunately, if your state doesn’t provide these protections, it means your account can be entirely drained during a levy.

Wage Garnishment

In addition to bank levies and property seizures, some creditors will also request that your wages be garnished until your debt is fully paid. Most states will protect a percentage of your wages from being garnished. Typically, 75 percent of your wages will be protected, although some states protect between 85 and 100 percent of your wages. Unlike other states, Alaska protects a dollar amount instead of a percentage of your wages.

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As you can now see, your location will be the biggest influencer of what protections you will receive after losing a debt collection lawsuit. If you want to know exactly what protections are offered by your state, you can reference this convenient chart provided by the Better Business Bureau (BBB).

Fund Protections

In addition to the state-by-state exemptions that are listed above, some of the funds in your bank account can be shielded during a bank levy. These exemptions will apply regardless of your location.

Primarily, money that you have been paid by the government cannot be collected during a bank levy. This includes both Social Security and Supplemental Security Income payments. Similarly, disability benefits and workers’ compensation payouts will usually be exempt from a bank levy.

A wide range of retirement benefits are protected from bank levies, including military retirement, longshoremen retirement, and federal retirement. Pensions and annuities may also be exempt.

Bank levies usually cannot be used to collect money received for child support or alimony. The exception is if the levy has been requested specifically to collect unpaid child support.

Finally, if you have received money as the result of a lawsuit, these funds may be unavailable to a bank levy.

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Removing these exempted funds prior to the beginning of a bank levy can help make sure that none of your protected money is mistakenly seized from your account.

Can You Stop a Levy?

Because a bank levy can put you in such a precarious financial situation, it’s important that you do everything you can to stop a levy. Your first course of action should be to dispute the levy as soon as it occurs. If your dispute is successful, you may be able to reduce the amount of money that the creditor is entitled to pursue. Should your dispute be unsuccessful, several other methods can be employed to stop your levy.

Due to the complicated process required to begin a bank levy, it’s possible that your creditor has made a mistake. This mistake can be as minor as a clerical error or as major as levying the wrong person’s bank account. If you find that your creditor has made an error, you might be able to use this error to end your levy.

In the previous section, we mentioned that statutes of limitations can apply to debt collection, and you can use these limitations to help you stop a bank levy. If you find that a creditor is attempting to levy your bank account after the statute of limitations has expired, then you will likely be able to regain access to your account by having the levy released.

Other ways you can stop a bank levy include proving identity theft, declaring bankruptcy, or negotiating a payment plan so that you can have the levy lifted. If you have any questions about stopping a levy, it’s a good idea to consult an attorney who specializes in taxes. With help from a tax attorney, you will be more successful in ending your bank levy.

Joint Bank Accounts and Levies

In many cases, it’s possible that a bank account will have more than one owner. For example, if you are married, then it’s likely that you and your spouse share a bank account. Unfortunately, creditors are able to levy joint accounts, meaning an account owner who isn’t responsible for the debt can be impacted by a bank levy.

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Some states do provide protections for non-debt-holding joint account owners during a bank levy. This means that even if the account has been frozen, the other account holder may still have access to their funds. You can also protect your spouse by proving that all payments made to the account were provided on your behalf.

Government Levies

Although there are multiple protections you can take advantage of when your bank account has been levied, these protections do not apply when the levy was requested by a government agency such as the Internal Revenue Service (IRS). The IRS is allowed to levy bank accounts and seize property whenever it is owed money, and no exemptions apply to these seizures. However, you can respond in a few ways.

  • You should consider paying your back taxes immediately after the IRS has notified you of its intentions to levy your bank account. If you are able to fully pay the taxes that you owe, then your bank levy should be canceled.
  • You could attempt to negotiate a debt settlement with the IRS. This solution is also available for private creditor levies. Before you attempt to negotiate a settlement, it’s advisable to hire an attorney. Your attorney should be able to negotiate a settlement that will satisfy your debts without burdening your finances too severely.
  • If paying back your debt would result in financial hardship, you can ask that the IRS cancel your back taxes. If you choose this solution, you will likely need to provide the IRS with a large amount of documentation proving your hardship.

If you’re facing a bank levy, it’s important that you check the laws in your state to see what types of protections you can access. To get assistance with your bank levy, get in touch with one of the many back tax assistance companies we have reviewed.


Jill Bridges
Expert Contributor
Last Updated: