There are several ways in which someone to whom you owe money can collect the debt. One of the common ways a creditor can make you pay a debt is through bank levies. A bank levy is a powerful tool that creditors use to recover the money you owe them directly from your account. A drained bank account is the last thing you want to see. Buying groceries and paying rent may be impossible when your creditors levy your bank account.
If you think that your creditors may seek to levy your accounts, you must act fast to protect your assets. This could be through payment of your debts, making a repayment plan with the creditors, or filing for bankruptcy. In California, bankruptcy allows you to enjoy the automatic stay, and creditors cannot come after you until the bankruptcy process ends.
However, declaring bankruptcy is not automatic. You must file your case in court and claim the necessary exemptions to protect your property. At the Los Angeles Business & Real Estate Law Firm, we understand that having a bank levy is challenging for you and your family. We serve clients seeking expert legal guidance to fight against a bank levy in Los Angeles, CA.
Understanding Bank Levies in California
A bank levy is a legal tool that creditors use to collect money owed by a debtor. Bank levies are a popular way for the IRS and other creditors to collect the debt directly from your bank account. When you owe a debt, creditors can only recover their money by threatening to sue you or making constant calls demanding payments.
Creditors do not have an automatic right to levy your bank account. Instead, the creditor must file a lawsuit against you to obtain a judgment and court order to collect the money. When you owe the IRS money, they will send you several notices of your tax debt before moving forward with the levy.
Typical creditors to whom you owe credit card debts or mortgages will not send notices. You will only receive notifications when the creditor seeks to levy your account. Having your account levied means you cannot access your funds until the creditor is fully paid.
How Does a Creditor Receive a Bank Levy?
Your creditors have several legal options they can use to force you into paying the debt you owe them. However, before the creditor can collect money from your account, they must receive a judgment from the court. The judgment indicates the amount of money you owe. The judgment stage is your first opportunity to protect your interests and rights in the bank levy process.
If the court finds your debt valid, the judge issues a judgment stating the amount you must pay. This could include your original debt and the interest accrued over the period you have not paid. After issuing a judgment, the next step is to ensure that the judgment is converted into a court order.
A creditor must seek a court order from each county that they seek to pursue a bank levy. Creditors must also know the banks that hold your money. This could be done by referring to the bank indicated during the debt application or the one used to make previous payments toward the debt.
When the judgment is converted to a court order, the creditor will serve it at the sheriff’s office, where your bank account is located. Your creditor can then hire a service to present the documents. You will be notified of the bank levy during the process. Seeking the guidance of a debtor’s rights attorney at this point is critical.
Your lawyer will help you understand the process and advise you on how to avoid losing your account money. When a bank receives levy documents, they freeze your bank account. The freezing of funds is done in an amount that can cover the entire judgment.
A collection order preceding a bank levy will last up to 180 days. This gives the creditors the time necessary to collect the money from your account. A creditor must go through this process several times to collect the funds from multiple accounts.
A creditor cannot use illegal means to collect the money you owe them. If the creditor engages in the following activities, they could lose the right to collect money from you:
- Harass you.
- Make false statements to collect the debts.
- Ask people for more than basic information about you.
- Tell your employer or other people about the debt you owe.
The easiest way to protect yourself from a bank levy is to avoid debt or pay the debt you owe on time. Staying debt-free takes work. Sometimes, you need financial discipline to keep up with your monthly payments and save for bad days. If you make only enough to pay your creditors.
Even before you accumulate debt and attract harsh debt collection attempts, you can make a budget to free up some funds for paying the debts. Another strategy is to use the snowball method to take out loans to cover urgent debts. This ensures that interest is not accumulated due to late payments. If you are already in debt, there are several options you can explore to avoid bank levies.
Filing for Bankruptcy to Avoid Bank Levies
Declaring bankruptcy is one of the most effective ways to avoid bank levies. In California, bankruptcy is a legal process that helps you put your financial life in order and discharge some debts. If you struggle to cover your debts, you may have considered bankruptcy as a way to recover. Although bankruptcy may be intimidating, it can help you protect your assets.
Immediately after you file for bankruptcy, you enjoy the automatic stay. This ensures that your creditors cannot call or threaten to sue you for failure to pay your debts throughout the bankruptcy process. When you submit a bankruptcy petition to the court, all your creditors will receive notice about the limits imposed by your bankruptcy case.
Most forms of wage garnishment will be stopped through the automatic stay. The automatic stay can temporarily stop their attempts even when multiple creditors seek to collect your debts. In California, Chapter 7 bankruptcy is reserved for individuals with low incomes. In this type of bankruptcy, the trustee liquidates your assets to pay secured debts.
The unpaid debts after the bankruptcy ends will be discharged, and your obligation towards them will be eliminated. Therefore, if you file for bankruptcy before the creditor starts recovering money through a bank levy, they may lose the amount you owe them.
If you do not pass the means test for Chapter 7 bankruptcy, you can file under Chapter 13. In this type of bankruptcy, the court allows you to make a repayment plan with your creditors. A bankruptcy repayment plan allows you to cover your debts over three to five years. Filing for bankruptcy under Chapter 13 will protect you from a bank levy.
After a bankruptcy discharge, you can pay the creditor a small amount of the debt you owe, depending on your repayment plan. With a repayment plan, you can control the amount paid to each creditor and avoid worrying about your inability to access your funds.
Although the automatic stay can protect you from some forms of wage garnishment, some exemptions to the automatic stay include the following:
Domestic Obligations
Spousal and child support are the most common domestic obligations that could prompt wage garnishment. Mostly, child support and alimony are protected by the law. Therefore, if they are the only reason you choose to file for bankruptcy, you may be required to find alternative methods to cover the payments. In California, changing domestic circumstances are the only reason these obligations could be removed.
Multiple Filings
Bankruptcy gives individuals overwhelmed by debt a fresh financial start. However, there is a limit to the number of times you can receive debt relief through bankruptcy. If the time limit required for filing has not elapsed, you cannot enjoy the automatic stay.
If you filed for bankruptcy in the past year and your case was denied, you can enjoy the automatic stay from a bank levy for up to thirty days. You can use this time to prove to the court that you filed the bankruptcy in good faith. However, you will not enjoy the automatic stay if you have had two or more denied filings in the past year.
These rules help ensure people do not use the automatic stay to avoid debt obligations. Although the automatic stay protects you from a bank levy, the protection is temporary. When your filing is complete, the protection is lifted. When your case ends, you must find ways to pay your creditors.
If you cannot continue paying your creditors after a bankruptcy discharge, it would be wise to file for liquidation bankruptcy.
Claiming Exemption to Avoid a Bank Levy
Filing a claim of exemption is another option to protect yourself from a bank levy. When a creditor levies your account, the money is frozen and held by the bank for up to ten days. Within ten days, you can file the claim for exemption. This allows you to recover the funds. The process of filing a claim of exemption has the following steps:
Determine Whether Your Funds Are Protected
Identifying whether your income is exempt is critical to avoiding a bank levy. Certain types of funds and income are protected from credit collection under California law. You can claim an exemption for the following forms of income from a bank levy:
- Up to 75% of earnings paid thirty days before the levy
- Social security benefits
- Unemployment benefits
- Workers compensation benefits
- Veteran benefits
- Funds for basic needs
- Disability benefits
Complete the Exemption Forms
If you believe that your money is exempt from bank levies, you must fill out the following forms and present them to the sheriff’s office within ten days of the levy:
- A claim of Exemption Form
- Declaration
- Financial statement. You must fill out a financial statement if you claim the funds in the particular account are reserved for basic needs.
Attend the Hearing
When you file a claim of exemption to counter a creditor’s bank levy, the creditor has the right to object to the claim. Whether or not you must attend a hearing depends on the creditor’s reaction to your claim of exemption. The funds will be returned to your account if the creditor does not object to your claim. However, if there is an object, you will need to show up for the hearing.
At your hearing, the judge reviews the claim and can either grant the exemption or deny it, allowing the creditors to move forward with the levy. Even when your claim of exemption is granted, your creditors can attempt to levy other bank accounts. If the count grants your claim of exemption, the funds levied were exempt.
Additional Ways to Fight a Creditor’s Account Levy
Filing for bankruptcy and claiming an exemption are the most common ways to protect yourself from a bank levy. However, the following are possible ways to fight account levies in California:
Proving Error from Your Creditors
People make mistakes frequently. Sometimes, a creditor could claim and attempt to levy your bank account for a debt that does not belong to you. Additionally, the creditor could claim a debt that is more than you owe. If you believe your creditor made an error, you can send a debt validation letter stating the exact dispute.
You can attach the documents to support your case if you have covered your debt. If the court finds the evidence convincing, you can recover the money from your levied bank account.
Negotiate With Your Creditors
Seeking a bank levy is a complicated and time-consuming debt collection measure. Sometimes, creditors may fear that this action will force you into bankruptcy. If you file for liquidation bankruptcy, the creditor can lose the amount you owe. Instead of moving forward with a bank levy, a creditor may be willing to negotiate a plan to ensure you pay the debt.
A repayment plan, in this case, could include a hardship program, a modification of the payment, or a lowering of the interest.
You are a Victim of Identity Theft
It is not uncommon for a person to apply for a debt using a stolen identity. If a creditor seeks to levy your bank account for a debt you did not incur, you can fight the levy by claiming identity theft. If the person who stole your identity is captured and punished, you have a high chance of recovering the money from your account.
Statute of Limitations
A statute of limitations is the time within which a creditor can legally collect for their debt. In California, creditors have a time frame past which they cannot levy your bank account. With the help of your attorney, you can check your local laws to determine the statute of limitations. The creditor cannot collect money from your account if the timeframe has elapsed.
Avoid Using Your Bank Account
If you owe the amount your creditors claim and bankruptcy is not an option, the creditors will continue to levy your bank accounts and take away your funds. Often, a bank levy can last until the creditor recovers the total amount you owe. Therefore, you can only avoid a levy by not using your account. If you ensure that no money comes into the account, you will protect your income and assets from creditors.
You can open a new one when one of your accounts is levied. All the automatic bills that are paid using the account can be transferred to the new account. This ensures you do not miss your payments and plunge into more debt.
Find a Competent Lawyer Near Me
When you fail to pay your debt or make payments on the loans, your creditors will find a way to recover the funds you owe them. This could be through constant phone calls to demand payments or sometimes taking legal action against you. One of the ways a creditor can recover the debt you owe is by requesting a bank levy. Bank levies freeze your account, giving the creditors a right to collect the debt directly from the account.
With a levied account, you cannot access your funds until all the debt is paid. This can be devastating for anyone since you have bills to pay. Fortunately, there are several avenues you can take to avoid a bank levy, including filing for bankruptcy. If the credit has already started recovering through a bank levy, you can still stop the bank levy and recover the money.
With the guidance of a skilled attorney, you can argue that the creditors made an error or that you are a victim of identity theft. At the Los Angeles Business & Real Estate Law Firm, we offer legal guidance to clients fighting a bank levy in Los Angeles, CA. Call us today at 310-796-7794 to discuss the details of your case.
