If creditors are threatening to levy your bank account, you may be worried about how you are going to pay your bills and living expenses if a creditor takes your money. Let’s go over some important information about levies and ways you can stop a levy.
Written by Attorney Jonathan Petts.
Updated August 11, 2020
If creditors are threatening to levy your bank account, you may be worried about how you are going to pay your bills and living expenses if a creditor takes your money. You may have been searching for ways that you can stop a levy when you came across information about bankruptcy filings.
Can bankruptcy stop a levy? Should you file a Chapter 7 case to stop a levy? What if you cannot afford to hire a bankruptcy attorney to stop a levy? Can you still stop a levy without a bankruptcy attorney?
All of these are important questions to be asking yourself. Let’s go over some important information about levies and ways you can stop a levy.
What is a levy?
A bank levy is a powerful tool used by creditors to get money from you if you owe them a debt. Bank levies are a popular way for the Internal Revenue Service and other creditors to collect debts.
Your creditors do not have an automatic right to levy a bank account. A creditor must file a debt collection lawsuit and obtain a judgment before it can levy a bank account. The IRS typically sends numerous notices of the tax debt before it sends a Final Notice of Intent to Levy.
What happens when a creditor puts a levy on your account?
When a creditor or the IRS provides legal notice to the bank of its right to levy your bank account, the bank freezes the funds in your account. Your bank may or may not inform you before freezing the account so that you could try to stop a levy. You may learn about the levy when your debit card does not work.
You should have an opportunity to dispute the levy. Unfortunately, while you are disputing a levy, you may bounce checks and incur fees and expenses. If you decide not to dispute the levy or are unsuccessful in doing so, you still have options to get the levy removed.
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How can I stop a levy?
Pay the debt. This solution may not be possible if you are experiencing a financial hardship.
Work out a payment agreement with the creditor. A creditor may negotiate a payment arrangement to stop a levy.
Allege that the creditor made an error and should not be allowed to move forward until the matter is resolved. The creditor is required to follow certain laws before it can levy a bank account.
Check to see if the statute of limitations has expired. A statute of limitations restricts the time a creditor has to collect old debt.
Allege the funds in the account are protected. Some money in an account may not be subject to a bank levy. For example, Social Security payments, federal pension payments, and child support payments are usually protected from bank levies.
In an emergency, the best way to stop a levy may be a bankruptcy filing.
What are the ways that bankruptcy can help me stop a levy?
When you file under Chapter 7 or 13, a bankruptcy stay goes into effect. The automatic stay remains in effect throughout your bankruptcy case unless the court changes it.
A creditor cannot take any action to collect a debt unless it gets permission from the bankruptcy court. The stay includes bank levies. Therefore, filing bankruptcy is one way to stop a levy.
In addition, if the debt is eligible for a discharge in bankruptcy, you get rid of the debt forever by completing your bankruptcy case. A bankruptcy discharge is issued at the end of a bankruptcy case and gets rid of your legal responsibility to pay the debt.
What are the downsides of filing for bankruptcy to stop a levy?
You must include all your debts. You cannot file bankruptcy on just one debt. All debts must be included in your bankruptcy case. While you may want to get rid of some of these debts, a bankruptcy filing could negatively impact some debts, such a mortgage or car loan.
The bankruptcy filing impacts creditors you want to continue paying. Your mortgage company and car loan company may stop sending you bills, automatically drafting monthly payments, and not allow you to make online payments after you file a bankruptcy case. They may take these actions even though you want to continue paying these debts.
If you want to keep your car loan, you might be able to maintain your relationship by entering a reaffirmation agreement. A reaffirmation agreement is where you commit to still being responsible for a debt despite your bankruptcy filing.
You could lose property in a Chapter 7 case. Another downside of filing a Chapter 7 bankruptcy to stop a levy is that it can put some of your property in jeopardy.
Most Chapter 7 cases are “no-asset” cases. This means that all property was protected by bankruptcy exemptions or the value of the property was too low to make selling the property worthwhile for the Chapter 7 trustee.
While the bankruptcy exemptions protect individuals filing in “no asset” cases, individuals who do have assets could lose unprotected property when they file for Chapter 7.
The levy may continue after the Chapter 7 case ends. If the debt is not eligible for a discharge in bankruptcy, the creditor may continue with the levy after the bankruptcy case is complete. For example, child support, personal taxes, alimony, some personal judgments, and student loans are not eligible for a discharge.
Therefore, you may stop a levy by filing Chapter 7, but the relief may only be temporary. For some individuals, the temporary relief may give them time to find a way to pay the debt to avoid a bank levy. Before you file, it’s important to understand exactly what kind of debts you have that led to the levy and what restrictions they come with.
Can I stop a levy without a bankruptcy attorney?
Yes, you can file a bankruptcy case to stop a levy without a bankruptcy attorney. Individuals are not required by law to hire a bankruptcy attorney to file for bankruptcy relief.
However, bankruptcy attorneys understand bankruptcy laws and have experience filing bankruptcy cases. If you can afford to hire a bankruptcy lawyer, it may be your best option to stop a levy.
If you cannot afford to hire a bankruptcy attorney, you still have the option of filing a Chapter 7 bankruptcy to stop a levy.
Bankruptcy Will Stop a Levy!
It is your decision whether to file a Chapter 7 case to stop a levy. In many cases, bankruptcy can give you relief from a levy. There are only a few instances where you might be restricted. If possible, take some time to think about your options so that you can tackle your debt in the most productive way.