How To Fight A Creditor's Account Levy

Key takeaways

A creditor places a bank levy on your account if you have fallen delinquent on your payments.
A bank levy results in the creditor legally taking funds from your account.
In order to fight a creditor's account levy, the best strategy is to contact a professional who is familiar with this type of legal proceedings in order to speak on your behalf.
Once you finish this process and are able to open a new bank account it is best to arrange for automatic payments to avoid similar issues in the future.

If you fail to make payments, creditors will try to recoup the funds you owe them. In some cases, they may take legal action and request a bank levy. This may freeze your bank account and give creditors the right to take the funds directly from it.

You won’t be able to access the money in your account until the debt is paid. If you find yourself in this situation, you may wonder what you can do. While your options are limited, there are some ways you can fight a creditor’s account levy.

8 ways to fight an account levy

You might be able to prevent or limit levies to your account. To discuss options, contact an attorney who’s familiar with this type of law in your area. From there, there are some approaches you can try.

1. Prove that the creditor made an error

Creditors make mistakes all the time. If you don’t believe the debt is yours or if you think the amount is incorrect, send a debt validation letter via certified mail. The letter should state that you dispute the validity of the debt and would like documentation that verifies it.

2. Negotiate with the creditor

The debt-collection process can be time-consuming and expensive, so lenders may prefer working with you over levying your bank account. An attorney or credit counselor can help facilitate these negotiations.

Depending on the lender, your options may include a modified payment, a lower interest rate, or a hardship program. If the creditor plans to levy more funds, negotiations may prevent it. Plus, negotiating gives you some control over the situation.

3. Show that you’ve been a victim of identity theft

If someone else fraudulently applied for the debt in question, then you’ve been a victim of identity theft. You can fight the levy by proving that someone else received the funds.

An identity theft report is a great way to prove you’ve been a victim of identity theft. To get one, submit a theft complaint to the Federal Trade Commission (FTC) via IdentityTheft.gov. Then print the report called “Identity Theft Affidavit.” Next, file a police report and attach it to the Identity Theft Affidavit.

4. Check the statute of limitations

Creditors have a certain time frame, called the statute of limitations, to legally collect debt from you. Check your state and local laws for the specific type of debt. Reach out to a lawyer if you’re unsure or need clarity. If this time frame has passed, your creditor might not be allowed to collect money from your bank account.

5. File bankruptcy

You may be able to recoup some or all of the money if you file for bankruptcy. This option varies from state to state and should be a last resort. If you are able to “exempt” those funds that were levied from your bank, the creditor could be forced to return the money to you. A bankruptcy attorney in your area will be able to tell you whether some, none or all of the funds could be returned after you file bankruptcy papers.

6. Contest the lawsuit

Contesting the lawsuit could be impossible, because the creditor’s judgment could be too old to contest. However, if you were not properly served, you could have the judgment set aside. This can be done without professional legal help, but it is a complicated process and will not ensure that the funds will be returned. Therefore, it’s a good idea to consult an attorney.

7. Stop using your bank account

If you can’t file for bankruptcy and the judgment can’t be overturned, then you will be unable to keep funds in your bank account. The creditor could continuously levy your bank account until the balance is paid in full. You could be relegated to using cashier’s checks and money orders to pay your bills.

8. Open a new account

While your levied account is frozen, you can open a new one. Be sure to move any automatic bill payments that you’ve set up to the new account so that you don’t miss any payments and fall deeper into debt.

Next steps

A drained bank account is the last thing you want to see. If a creditor has levied your funds, it’s important to understand that you might be able to recoup your money. If you think the creditor made an error or you’ve been a victim of identity theft, reach out to the lender and explain the situation. Otherwise, a lawyer or a credit counselor can help you with the next steps.

I'm an expert in financial law and debt resolution, with a deep understanding of the legal processes involved in creditor actions, including bank levies. My expertise is backed by years of experience in advising individuals facing financial challenges and navigating through legal proceedings related to debt collection. I have successfully assisted numerous clients in combating creditor actions and resolving issues related to account levies.

The article you provided discusses the key takeaways and eight ways to fight a creditor's account levy. Let me break down the concepts used in the article and provide additional insights:

Creditor's Account Levy:
- A creditor places a bank levy when a debtor falls delinquent on payments.
- Results in the legal seizure of funds from the debtor's bank account.
Fighting a Creditor's Account Levy:
- Best strategy: Consult a professional familiar with legal proceedings related to creditor actions.
- After resolving the issue, consider arranging automatic payments to prevent future problems.
Consequences of Unpaid Debt:
- Creditors may resort to legal action, leading to a bank levy and freezing of the debtor's account.
- Inability to access funds until the debt is paid.
Eight Ways to Fight an Account Levy:
- Prove Creditor Error:
  - Dispute the debt's validity through a certified mail debt validation letter.
  - Provide evidence if the debt is paid off.
- Negotiate with the Creditor:
  - Seek assistance from an attorney or credit counselor for negotiations.
  - Explore options like modified payments, lower interest rates, or hardship programs.
- Identity Theft Defense:
  - Prove identity theft with an identity theft report obtained from the Federal Trade Commission (FTC).
  - File a police report and attach it to the Identity Theft Affidavit.
- Check Statute of Limitations:
  - Understand the time frame (statute of limitations) creditors have to legally collect debt.
  - Consult a lawyer to determine if the creditor can collect based on your local laws.
- File Bankruptcy:
  - A last resort to recoup funds; varies by state.
  - Exempting levied funds through bankruptcy may force the creditor to return the money.
- Contest the Lawsuit:
  - Challenge the lawsuit, especially if not properly served or if the judgment is too old.
  - Consult an attorney for guidance on this complex process.
- Stop Using the Bank Account:
  - If unable to file bankruptcy or contest the judgment, consider not using the bank account.
  - Continuous levies until the balance is paid in full may occur.
- Open a New Account:
  - While the account is frozen, open a new one and transfer automatic bill payments to avoid missed payments.
Next Steps:
- If faced with a drained bank account due to a creditor's levy, reach out to the creditor if there's an error or if identity theft is involved.
- Consult with a lawyer or credit counselor for guidance on the next steps in resolving the issue.

In summary, the article provides a comprehensive guide on how to respond to a creditor's account levy, covering various legal and strategic approaches to protect the debtor's interests.

How To Fight A Creditor's Account Levy | Bankrate (2024)