3 Questions About Bank Levies Answered

When a bank levy presents itself, it triggers a whirlwind of questions, most pertaining to how to end and remove it. Once a bank levy is placed on your account, there isn’t anything you can do to forego payment of your debts, but you do have options for financial recovery. Below are three common questions about the particulars of a bank levy.

Q: How do bank levies work with joint accounts?

A: The answer to this question depends on your circumstances – whether it is a spousal or non-spousal account and where you are. In general, the IRS does not investigate the account in order to differentiate sources of funds.

Non-Spousal: In some states, creditors can’t take more than half of the account’s funds. In others, all is up for grabs, with the exclusion of exempt funds. However, in many states you can protect funds by providing evidence of traceable contributions, so that the money garnished is the money that belongs to the debtor. This must be a clear trace via official documents such as pay stubs, deposit slips, and benefits statements, and presented in court at the hearing that is set up via the notice in the mail informing you of the garnishment.

There is also the possibility of a convenience account; instead of an account that was opened for the purpose of jointly depositing funds, individuals were added to the account for the convenience of having access to the funds, on behalf of an elderly parent, for example. This type of account can be cleared through traceable contributions as well, by providing proof that the debtor was added at a later date, they made no contributions to the account, and so on.

Spousal: Depending on where you live, three scenarios are possible: your joint account may be levied, your account won’t be touched at all, or the separate account belonging to the spouse of the debtor may be levied. States vary widely in laws pertaining to this. If you live in a community property state, which includes 11 states, any and all assets owned by both the debtor and their spouse can be garnished. However, some community property states like Texas exempt debts, unless the funds fall under income made from joint property. In states that recognize property ownership as tenancy by the entireties, your account will not be touched if you are legal spouses. Finally, in common law property states, which are most states, your account will only be garnished up to half of the funds, or it will not be levied at all, unless the debt incurred benefited the spouse and family, or to acquire joint property.

Regardless of what state you are in, there are certain funds that are protected from garnishment.

Q: Is my _____ exempt from the levy?

A: There are several funds that cannot be garnished from your account. Types of income include Social Security, worker’s compensation, veteran’s benefits, disability, student loan disbursements and aid, unemployment, other government benefits, retirement income, child support, and even a portion of your wages (sometimes 25% or more) are exempt from garnishment under both federal and state laws. The best way to protect these funds is to deposit them in a separate account from your regular income, as there are exceptions to these exemptions.

If you have a large amount of money in the account, or if you owe a certain type of debt, the account may still be levied. Also, if your account contains more than two months’ worth of deposits, the judgment creditor may take any other funds to pay the debt. Particulars vary state to state.

Q: How can I stop a bank levy?

A: The main point of advice is to act quickly. When you receive the final notice that the IRS is freezing your account, there are 21 days until the funds are removed. There are three points of negotiation. First, you can form a hardship plan, by which you provide evidence that levying your bank account will cause you to not meet basic standards of living. Most practical and beneficial would be setting up a payment plans, to pay monthly installments. This stop the levy as long as you pay each month and on time. Finally and the most difficult route, is to negotiate a lump sum settlement. This course of action requires a tax professional and may be arduous, but can pay off and stop the levy quickly. There are other courses of action that will not necessarily stop a bank levy, but help your financial situation, outlined here. [link]

Bank levies can hit your wallet hard, and many circumstances depend on how this plays out, if you can fight it, and how to recover financially. Still have questions? Contact one of our professionals to address your concerns.

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