Can Debt Collectors Put a Levy on a Bank Account?
- Many frozen bank accounts are the result of so-called "default judgments." A judge issues the legal order after the defendant fails to respond to the lawsuit. Some people default by not showing up for a scheduled court hearing. Others default by not responding in writing to the lawsuit as requested by the court. Debt collectors know that some people will ignore court notices despite the seriousness of the situation. That allows the debt collectors to receive easy victories -- even if the debt collector did not have a solid case for winning the lawsuit.
- Debt collectors unable to collect on judgments file a motion in court requesting bank garnishment. Judges usually agree with the order, with a copy sent to the defendant's bank demanding a levy on the account. With the levy in place the account holder can only deposit money. The bank prohibits all other functions, including the use of debit cards and checks. Meanwhile the debt collector begins withdrawing money from the account to satisfy the judgment.
- Some people file for bankruptcy to remove a bank levy. Emergency bankruptcy filings are possible in one business day, with the action forcing banks to stop the garnishment. A potent legal order called "the automatic stay" unfreezes bank accounts and halts all other debt collection efforts once the debtor files for bankruptcy. However, bankruptcy is a desperate move that most people should avoid, according to the Federal Trade Commission. Bankruptcy remains on credit reports for 10 years and ruins credit for a while. But some people receiving court judgments already have poor credit and actually benefit from filing for bankruptcy. In addition to unfreezing bank accounts, bankruptcy eliminates or reorganizes debt.
- Contacting the debt collector and negotiating a settlement can also end the levy. With a judgment in place the debt collector is likely to demand full payment, but may accept installments. Usually the debt collector will ask the bank to end the levy after receiving a signed agreement and the initial payment. However, violating the terms of the agreement by missing payments could lead to reinstatement of the levy.
