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Understanding a Bank Levy and What You Can Do if Your Account Is Frozen

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In a Nutshell

If a creditor or debt collector sues you for an unpaid debt and they win, they may be able to get a court order for a bank levy. This allows them to take funds you owe directly from your bank account. Most creditors will have to jump through some legal hoops to do this, but some government agencies can levy your bank account without first getting a court order.

Written by Attorney William A. McCarthyLegally reviewed by the Upsolve Team
Updated February 2, 2024

What Is a Bank Levy? 

A bank levy is a serious debt collection measure sometimes used by creditors and debt collectors to take funds directly from your bank account. This money is used to repay an unpaid debt. Most creditors need a court order before they can touch your bank account funds.

If you have unpaid credit card debt, medical bills, or personal loans, you may be at risk of being sued and having your bank account levied. The IRS can even use a bank levy to collect tax debt for unpaid taxes. 

To initiate a levy, creditors must serve documents on the bank or financial institution where your account is held. The bank then freezes or puts a hold on the funds subject to the levy. This will typically be the money you have stored in your checking or savings accounts. 

You should have the opportunity to challenge a levy in court. If the challenge fails, the bank will send the funds to the creditor to satisfy the debt.   

Are Bank Levies Common? 

It takes time and money for lenders to seize funds from an account. They also don’t know your account balance before initiating the levy process. Because of this, creditors usually only use a bank levy once they’ve exhausted all other means to collect the unpaid debt.    

A bank levy can be especially harsh if it cleans out your account, but you may be able to protect some or all of your money. Learning about the rules, including your defenses, will help you know what to do and when to seek additional help, depending on your financial situation.

How Do Bank Levies Work? 

The levy process starts with a past-due debt and a creditor looking for ways to collect. It usually follows less formal collection efforts, like collection calls. Most lenders have to get court approval to levy an account. 

Step 1: The Creditor Files a Debt Collection Lawsuit

To get a court order, most creditors must first file a lawsuit against you. If they’re successful, the court will issue an order stating how much you legally owe. 

This is called a money judgment. This is the best, and sometimes only, time for you to challenge the actual amount of money the creditor claims you owe.   

Government Agencies Don’t Need Court Approval To Levy Funds

Some government agencies don’t need a court judgment to levy your account. 

For example, the Department of Education (part of the federal government) doesn’t need a court order to collect on student loan debt owed. But they are legally required to give you advanced notice. 

The IRS can also levy your account without first getting a court order. But you should get advanced notice — with a document called a Final Notice of Intent To Levy — at least 30 days before the IRS serves a tax levy on a bank.

Step 2: The Court Issues an Order Called a Money Judgment (if the Creditor Wins)

Having a money judgment gives lenders more collection options. Wage garnishment is used most frequently, but bank levies and property liens also fall into this category.

To levy your account, a creditor must have the necessary legal documents. In addition to the money judgment, they may need a separate writ of execution (similar to a court order) identifying the accounts that will be levied. Additional documents will depend on state law. 

State law determines how a creditor can get money from your account, places limits on how much money they can take, and outlines rules about exempt funds. 

Step 3: Your Bank Freezes Your Funds

Once the creditor provides the bank with the levy documents, the bank will freeze the account. This will stop all withdrawals. If you have more funds in your account than what you owe on the debt, the lender can only take the amount that you owe. 

The freeze will be in place for several weeks, generally 21 days. You may or may not be notified that the levy is in progress. To add insult to injury, banks may even charge you a fee to process the levy. 

Some bank levies remain on an account until the debt is paid or the levy is lifted. A levy can be used more than once, even on the same account. If there aren’t enough funds available on the creditor's first attempt, they can retry as many times as needed to repay the debt.    

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Can You Remove a Levy?

To remove or lift the levy, you must either pay the debt in full or show that the funds in the account are exempt from the levy. Similar to wage garnishment exemptions, certain types of income in bank accounts may be exempt or excepted from levy. 

Are Any Funds Exempt From Bank Levies?

Not all the money in your bank account is treated the same. Some funds are exempt (protected) from being levied, including:

  • Child support payments you’ve received

  • Federal payments and benefits, including Social Security benefits, Supplemental Security Income (SSI) benefits, federal employee pensions, and veteran’s benefits. You may lose protection for these payments if the federal government initiated the levy.

  • Unemployment compensation benefits. Exceptions include: child support you owe. Past-due child support is a high-priority debt, and it can be withheld directly from unemployment insurance benefits. It can also be seized from a bank account. The rules vary by state.  

Some states also protect a minimum amount in your bank account. Check your state’s laws to see if and how this applies to you.  

Like defenses to a levy, the exemptions are only effective if the bank or court knows about them. Banks may be required to check and see if electronic funds are exempt. But you can also provide the information to the bank or the court.  If you have any exempt income, setting up an account solely for that income can be helpful.

What Other Ways Can Judgment Creditors Try To Collect on a Debt?

Levying your bank account is just one way a judgment creditor can collect an outstanding debt. Levies have the advantage of giving the lender access to a potentially large sum of cash. They do have other options, though. 

They Can Garnish Your Wages

Creditors can levy a portion of your wages through a process called wage garnishment. As with other collection actions, lenders generally need to get the proper legal documents from a court before garnishing your wages. If they do, an employer may have to turn over a portion of your wages. 

But creditors can’t take your whole paycheck. Federal and state laws determine the maximum amount that can be garnished. It’s often capped at around 25%. It can vary by the type of debt and the governing state law.     

They Can Put a Lien on Your Property

Creditors can place a lien on your home and either force a foreclosure sale or get paid when you sell the home. After the sale, the proceeds are paid to “lift” the lien. Creditors like mortgage lenders have to jump through a lot of hoops to force a sale. You may be able to stop the foreclosure.

They Can Take Your Personal Property

Lenders can also obtain a writ of execution from a court to seize personal property. The writ authorizes a sheriff or other public official to go to your home or business and seize assets (such as cash register, boats, jewelry, etc.). They can even take your car in certain situations. The property can then be sold at a public auction, and the proceeds are applied to the debt. 

Not all property can be seized, though. If a creditor has a judgment against you, it can be helpful to know what types of personal property are exempt and what personal property can be seized.  

What Can You Do To Dispute a Bank Account Levy? 

If you know what to do if your bank account is levied, you could save part or all of your funds from being taken. If the lender has followed the proper procedure, you should have an opportunity to dispute the levy.   

Creditors that are required to get a writ of execution from the court usually have to give you notice, too. But you’ll only have a short time to act — typically 10 days. You can raise the defenses and exemptions discussed below. 

Even if you don’t receive notice, because it’s not always required, you’ll likely learn about the levy by trying to withdraw funds since your funds will be frozen for several weeks.

What Defenses Can You Use Against a Bank Levy? 

In response to a levy on your account, consider your defenses. Presenting a valid defense could help protect the money in your account. Here are some things to look out for:

  • Errors in the judgment: Ensure you actually owe the money, that the amount is correct, and that all accounts are properly listed on the writ of execution.

  • Identity theft or an invalid debt: Make sure the debt is yours and that you actually owe it. 

  • Lack of notice: If you’re not given the required notices, it may be possible to lift the levy. The creditor may be able to repeat the process and give you the required notice, but this will still give you more time to prepare other defenses. And remember, not all lenders are required to give you notice.

  • The statute of limitations: Lenders are generally required to collect on a judgment within a certain time, often 4–10 years. If they don’t, they’re out of luck, but you usually need to raise this as a defense if they’ve sued you.

Are There Other Ways To Stop a Bank Levy?

Yes. If you file for bankruptcy, creditors have to stop all collections actions, including bank levies. You can also try negotiating the debt (and repayment plan) with the creditor or presenting a case for financial hardship. The IRS has processes in place to help taxpayers with settling back taxes or presenting a financial hardship case.  

If you’re considering filing bankruptcy, Upsolve may be able to help you! Our free web app helps you prepare your Chapter 7 bankruptcy forms so you can file for free, without a lawyer. Take our free screener now to see if you’re eligible. 

Let’s Summarize... 

A bank levy is often a last-resort collection tool creditors use to collect outstanding debts. Creditors typically have to go to court to get a money judgment before they can levy your account. When the bank receives the levy, it freezes funds in the account up to the amount of unpaid debt. You can protect your money if you have a good defense, such as an error in levy documents or an expired statute of limitations. You can also stop the levy, at least temporarily, by filing bankruptcy. 

Written By:

Attorney William A. McCarthy


William (Bill) started his legal career with a small firm in Southern California where he handled real estate matters, corporate acquisitions, and tax planning. After a few years, he decided on a different career path and took a job with the Office of Chief Counsel, a branch of t... read more about Attorney William A. McCarthy

The Upsolve Team

Upsolve is fortunate to have a remarkable team of bankruptcy attorneys, as well as finance and consumer rights professionals, as contributing writers to help us keep our content up to date, informative, and helpful to everyone.

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