How to Stop a Bank Levy

If you owe debt and don’t pay it, the balance might go to collections. Once that happens, the lender can seek a court order to withdraw payment from your bank account. If the judge grants the request, the lender can place a bank levy on your account. 

Bank levies freeze your account and allow lenders to collect payment. Once there’s a levy on your account, you can’t access your money until payment is complete. Bank levies are inconvenient and often lead to financial hardship, but there are ways to get help.

Eric Kirste, CFP®, advises that the most common triggers that prompt a bank levy are “…unpaid taxes or unpaid debt. The Internal Revenue Service (IRS) and the Department of Education tend to use the bank levy the most.” Here’s how to stop a bank levy and decide which strategy is best for you. 

In this guide:

• How bank levies are enforced
• What income can and can’t be levied?
• How to stop a bank levy
• How long does it take to stop a bank levy?
• What to do if you receive a notice of levy on your bank account
• Is there a difference between a bank levy and a tax levy?
• What happens if you don’t stop a bank levy?
• How to avoid a bank levy in the future
• Who to contact to stop a bank levy
• FAQ

How bank levies are enforced

Creditors usually need a court order from a judge to levy your bank account. Before that can happen, the creditor must notify you of the lawsuit and complete the following steps. 

1. Make contact: The creditor must contact you by telephone or in person to inform you of the debt. The Fair Debt Collection Practices Act requires creditors to provide specific information about your debt, including the account number, an itemized list of what you owe, and contact information. If you don’t respond to the notice, attempt to find a solution, or make payment, the case progresses. 
2. File a lawsuit: The creditor can file a lawsuit against you to collect the money. You will receive notice of the case, including the date and time. 
3. Get a judgment: On the court date, the judge will decide about your case, determining whether the creditor can levy your account. If you don’t respond to the lawsuit notice or appear on the hearing date, the judge can issue a default judgment against you. Default judgments allow creditors to levy bank accounts and collect payments. 
4. Levy your account: Creditors can usually begin to garnish your wages 30 days after the judgment against you. Most levies expire after 180 days and are only valid for one bank account. 

Two types of debt don’t require a court hearing for a bank levy: federal and state tax debt. But the IRS must complete the following steps. 

1. First notice: The tax agency calculates what you owe and sends a Notice of Demand for Payment. If you do not pay or attempt to solve the tax debt, the situation escalates. 
2. Final notice: The IRS must send a Final Notice of Your Right to a Hearing at least 30 days before the levy begins. 
3. Intent to contact third parties: The final step is for the IRS to send a notice of intent to contact third parties, such as your employer or bank. 

The process can differ for state tax agencies but is often similar. 

What income can and can’t be levied?

Even if you have a levy on your bank account, there are limitations to the type and amount of money the creditor can seize. Most government benefits are exempt from court-ordered bank levies. 

Creditors can’t take money if it comes from the following benefit programs: 

• Social Security
• Supplemental Security Income benefits
• Veterans Affairs benefits
• Federal student aid
• Military survivor benefits
• Federal emergency disaster assistance
• Benefits from the Office of Personnel Management

Federal law also limits the amount creditors can garnish from your bank account. Your income after legally required deductions, including state and federal taxes, determines the amount.

The maximum wage garnishment depends on how much you make:

1. For borrowers who earn more than $290 per week: The creditor can levy up to 25% of the employee’s weekly disposable earnings.
2. For borrowers who earn less than $290 per week: The creditor can levy up to 25% of the amount of disposable earnings that are more than 30 times the federal minimum wage, which is $7.25 an hour at the time of writing ($7.25 x 30 = $217.50). 

For example, imagine you earn $7.25 per hour and work 20 hours per week. Your weekly earnings are $110 after legally required deductions. In that case, none of your money is subject to garnishment since you didn’t earn more than $217.50. But if you earn $1,000 per week after legally required deductions, you could pay up to 25%, or $250. 

The rules for bank levies related to state and federal taxes differ from other types of debt. The limits are similar, but pausing or stopping a tax levy is often easier. For example, you may be able to stop an IRS bank levy if it causes economic hardship.

How to stop a bank levy

You have different options to stop a bank levy. The first step is determining whether you agree with the debt.

If you think it’s incorrect, you can get it vacated or explore the statute of limitations. If you think it’s correct, you must repay the balance. But you have options and might only need to pay a portion. Here’s what you need to know. 

Approach	Best for
Pay in full	Active bank levies
Explore the statute of limitations	Debt that is multiple years old
File for bankruptcy	Levies you can’t pay
Get it vacated	After a court judgment against you
Set up a payment plan	Before the court date
Reach a settlement	Before an active bank levy

How to stop a bank levy if you agree with the court order

If you have an active bank levy and agree you owe the money, you can pay in full or file for bankruptcy. Here’s how you can move forward if you agree with the court order. 

Pay in full

The fastest way to stop a bank levy is to pay the balance in full. Once you pay the balance, the creditor can no longer levy your account, but unfreezing your account may take extra time. 

If you have the funds to pay in full, contact your creditor to set up the payment and release the levy. 

Explore the statute of limitations

The statute of limitations ensures that creditors have limited time to collect debt. Once the time passes, you no longer need to pay. The timeline varies depending on your state and the type of debt. In California, for example, creditors can’t file a lawsuit for unpaid debt after four years from the last activity on the account. 

If you think your debt is old enough to qualify for the statute of limitations, review the laws for your state, and contact a lawyer or tax relief company for additional help. 

File for bankruptcy

If you can’t repay your debt, bankruptcy is an option, but it has challenging consequences, including poor credit. Bankruptcy can discharge most types of debt, including consumer debt. Once you file, creditors must stop collections activities, including bank levies, while the case is ongoing. 

If you want to file for bankruptcy, the first step is often consulting with a lawyer to learn more about your options. 

How to stop a bank levy if you disagree with the court order

Creditors can make mistakes, and as a result, bank levies aren’t always correct. If you disagree with a court judgment, you can try to vacate or change it. But you typically need to move fast and might need a lawyer to help. Here’s what to expect. 

Vacate a court order

After you receive a judgment stating a creditor can levy your bank account, you can file a motion to vacate or change the decision. You typically need to file the motion within 180 days and have a solid reason for doing so—for example, not receiving notice of the lawsuit.

After you file, the judge can set a new court date for another hearing. At that point, you can present evidence to prove why you shouldn’t have to pay the debt. 

Our expert’s advice

Eric Kirste

CFP®

You might challenge a bank levy if the creditor made an error and the debt is not yours or the amount is incorrect. Either way, you will need proof that supports your claim. This can be in the form of a statement, letter, or receipt. Via Certified Mail, send a copy of the proof along with a debt validation letter to the appropriate creditor’s address.

How to prevent a bank levy 

Responding to communication from your creditors is the best way to prevent a bank levy. You have a better chance of finding a solution that benefits you if you settle before the issue goes to court. Here’s how to prevent a bank levy once your debt is in collections. 

Set up a payment plan

Creditors will often work with you to establish a payment plan or installment agreement so you can repay your debt over an extended period. It’s a manageable option if you can only pay part of the balance each month.

To set it up, contact your creditor to negotiate a payment plan. You can also request that the creditor waive interest, fees, and other charges during the negotiation. 

Reach a settlement

You can often work together to reach a settlement if you contact the creditor before a lawsuit or bank levy. Settlements allow you to make a one-time lump-sum payment for less than the total amount you owe. Borrowers often pay half the original balance, but you must negotiate with the creditor to determine the final amount. 

Settlements can help you save money and avoid a lawsuit. It’s a beneficial agreement for creditors because it eliminates the time and expense of court hearings. 

>>Read more: How to Settle Tax Debt With the IRS 

How long does it take to stop a bank levy?

The time frame for stopping a bank levy depends on how you plan to handle the debt notice. Paying your balance in full is the fastest way to remove a levy. You can typically expect it to end within 30 days of payment. But other options, such as bankruptcy or settling, can take much longer.

Approach	Estimated timeline
Pay in full	Around 30 days
Explore the statute of limitations	Multiple months
File for bankruptcy	Multiple months (levy suspended while filing)
Get it vacated	180 days after court judgment
Set up a payment plan	Less than a month
Reach a settlement	Multiple months

What to do if you receive a notice of levy on your bank account

According to the Fair Debt Collection Practices Act, the debt collector must notify you of the debt you owe and any lawsuits. 

If an active levy is the first notice you get, consider contacting a tax lawyer for help resolving the issue. 

If it’s not your first communication from the creditor, you may want to take the following steps. 

1. Confirm the accuracy: The first step is to ensure the debt is accurate. Review statements from the creditor.
2. Consult a professional: It’s usually essential to discuss your next steps with a tax professional who can review the levy and advise how to proceed. You might consider working with a lawyer, credit counselor, or tax relief company.
3. Open a new bank account: While you work with a professional to stop the levy and unfreeze your account, you might need to use a separate account or open a new one. Doing so will allow you to pay your bills and access money. 

Is there a difference between a bank levy and a tax levy?

Creditors can seek bank levies for any unpaid debt. Bank levies allow creditors to withdraw funds from a borrower’s bank account to repay debt. But to do so, creditors must have a court order from a judge. 

The IRS and state tax agencies can also establish bank levies for unpaid tax debt, often known as tax levies. With tax levies, government tax agencies can seize different assets, including wages, houses, cars, bank accounts, and dividends. 

Tax levies don’t require a court order or judgment. Instead, the tax agencies must notify the taxpayer and complete several steps. The tax levy begins if the taxpayer does not respond or take action throughout the notification process.

Is there a difference between a federal and state tax levy on your bank account?

Federal and state levies are similar—the IRS or state tax board sends you notices. If you don’t respond, the levy begins. 

The primary difference is that filing for bankruptcy often discharges your state tax debt but not your federal tax debt. Plus, each state can handle levies differently. Most states have a process similar to the IRS, but it’s essential to understand how it works in your state.

What happens if you don’t stop a bank levy?

If you don’t stop a bank levy, the lender will freeze your account and withdraw funds as payment for your debt. There are limits to what the lender can take from the account. But levies can still cause financial hardship, especially since you can’t access the account while it’s frozen. You may have difficulty paying bills, managing automatic payments, or accessing your money during an active bank levy. 

The lender will continue withdrawing from the account until repayment is complete. Depending on the court order, the amount withdrawn might include additional fees to cover the cost of collection, interest, or attorney fees. 

How to avoid a bank levy in the future

The best way to avoid a bank levy is to make monthly payments toward your debt and avoid collections. If that’s not possible, contact your lender as soon as possible. 

Most lenders want to avoid the cost and hassle of court. Because of that, lenders usually offer payment plans or other options for debt settlement. If you don’t communicate with your lender, the situation can escalate and lead to a lawsuit. If you ignore that, the lender might get a default judgment to begin a bank levy. 

Who to contact to stop a bank levy

Bank levies are overwhelming and financially disruptive. But several experts can help if you need assistance. Here are your options for professional help. 

• Credit counselor: Credit counselors are an option if you need help managing your debt payments or establishing a solution. Credit counseling services are usually nonprofit organizations that can help you reach a settlement or establish payment plans. 
• Debt relief company: Debt relief companies are for-profit organizations that can negotiate with creditors on your behalf, especially for debt settlements. 
• Debt lawyer: Lawyers can help you understand the law and your rights during a bank levy, especially if you need to file a motion to vacate or appear in court. They can also represent you in court and handle communication with debt collectors on your behalf. 
• Free legal aid: If you need legal help but can’t afford a lawyer, check whether you qualify for free legal assistance. 

FAQ

Can all your money be taken in a bank levy?

Federal laws limit how much money lenders can remove from your account with a bank levy. It depends on how much you earn, but the maximum amount creditors can take is 25% of your weekly income after necessary deductions. If you earn less than 30 times the minimum wage each week, creditors might be unable to collect payment.

Are all your bank accounts susceptible to a bank levy?

Creditors must have a Writ of Execution to use a bank levy. The Writ only applies to one bank account, and creditors need an additional Writ for each bank account. Because of that, most creditors levy just one bank account. 

Can an enforced bank levy be reversed?

Once the court issues a judgment, you can file a motion to vacate the decision within 180 days. You must have a valid reason for requesting the motion. You’ll have a new court date if the judge accepts your motion. You can present further information, and the judge might change the ruling from the first case.