Unpaid credit card debt can come back to haunt you in the form of a bank levy. Bank levies are a type of garnishment in which your creditor forces your bank to turn over money in your bank accounts as payment for a past debt you neglected to pay off. If you do not pay your credit card debt voluntarily, the credit card company or collection agency that owns the debt can file a bank levy against you in an effort to recover the debt you owe. Familiarizing yourself with your rights helps you limit the negative impact a bank levy has on your finances.

 

How a Bank Levy Works

 

Credit card companies have the legal right to sue cardholders that stop paying their credit card bills, but few actually do so. Credit card issuers lack the time and resources to adequately pursue most debtors for payment. Instead, the credit card company will sell outstanding accounts to collection agencies.

 

If the collection agency cannot persuade you to pay your delinquent credit card balance, it has the option to file a lawsuit against you. Losing this lawsuit leaves you subject to a civil judgment from the court. Your creditor then uses this judgment to levy your bank accounts. Neither credit card companies nor collection agencies can levy your bank accounts without first obtaining a civil judgment via a lawsuit.

 

Frozen Bank Accounts

 

Bank levies don’t occur without fair warning. The bank must freeze your account for a certain amount of time, usually 21 to 30 days, before the actual levy takes place. This freeze gives you the opportunity to contest the impending garnishment before it actually occurs.

 

One particularly unpleasant feature of a bank account freeze is the fact that you can neither withdraw money nor make purchases from a frozen account. Any checks you’ve written from the account that have yet to clear will bounce. If you frequently pay for items using checks, you may find yourself facing a series of bounced check fees from merchants who were unable to cash your checks due to the hold on your bank account.

 

Bounced check fees aren’t your only concern. Banks treat a frozen bank balance the same as an empty bank account. If you opted into overdraft protection, your bank will charge you a fee for each purchase you attempt to make using funds in your bank account while the account is subject to a freeze.

 

Funds Exempt From Levy

 

A credit card company or collection agency with a civil judgment against you may be able to levy your bank accounts, but it can only seize nonexempt funds. Exempt funds are protected from seizure by commercial creditors. All federal benefits are exempt from being seized in a bank levy along with child support, unemployment and alimony payments.

 

Unless you notify your bank of the exempt funds your account contains, the bank will turn your exempt income over to the creditor when the mandatory freeze period expires. If you have exempt income in your bank account, it is imperative that you request an exemption claim form from your bank in order to prevent the creditor from seizing money it lacks the right to take.

 

Paying the Credit Card Balance

 

The quickest and easiest way to release a frozen bank account and avoid a bank levy altogether is to repay the defaulted credit card debt in full. Once your creditor receives payment, it no longer has the right or the incentive to hold your bank account hostage.

 

Although credit card debt settlements are common after a consumer defaults, don’t expect the credit card company or collection agency to settle with you for a lesser amount and subsequently release your frozen bank account. A civil judgment gives your creditor the ability to collect the full amount you owe by force. Thus, it is unlikely that you will be able to negotiate a settlement after the creditor obtains a civil judgment in court.

 

Contesting the Civil Judgment

 

You can contest the creditor’s civil judgment with the court. If you’re successful, the court will overturn the original judgment and the creditor will lose its ability to levy your bank account. This results in a frozen bank account being immediately released. If the levy has already taken place, you have the right to demand that the creditor return any previously seized funds.

 

Acceptable grounds for contesting a judgment vary. One example of a situation in which you could successfully have a judgment overturned is if you never received a court summons prior to the original lawsuit. Because you were not notified of the lawsuit, you were not given the opportunity to avoid the judgment by defending yourself in court.

 

 

Preventing a bank levy is far easier than having one successfully overturned or suffering the negative consequences of a frozen bank account. If you have no exempt funds to declare, the creditor collecting your defaulted credit card debt can seize your entire bank balance – leaving you unable to pay other bills. Paying at least the minimum on your credit cards is crucial to avoid a charge-off and eventual bank levy.