What is levy?

How Does a Bank Levy Work?

A bank levy follows a step-by-step legal process:

1. Judgment: The creditor first obtains a court judgment confirming the debt. For tax levies, the IRS uses its own administrative process instead of the courts.
2. Writ of execution: The creditor obtains a writ of execution (or writ of garnishment, depending on the state) from the court, authorizing seizure of the debtor's property.
3. Service on bank: The writ is served on the bank where the debtor has accounts. The bank freezes funds subject to the writ after reviewing and protecting covered direct-deposited federal benefits.
4. Exemption review: The bank checks for automatically protected funds (direct-deposited federal benefits). The debtor has a limited window — typically 10 to 30 days depending on the state — to claim additional exemptions.
5. Seizure: After the exemption period expires, the bank releases the non-exempt funds to the creditor. The account is unfrozen for future deposits.

Whether a bank levy catches only what's in the account that day depends on state law. It can capture non-exempt funds in the account when the writ is served and, depending on state law, funds deposited afterward. For example, in Florida, the writ can also reach non-exempt funds deposited between service and the bank’s answer.

What Funds Are Exempt from Levy?

Several categories of funds are automatically or conditionally protected:

• Federal benefits (automatic): For private creditor levies, banks must automatically protect up to two months’ worth of qualifying direct-deposited Social Security, SSI, VA benefits, federal civilian retirement and Railroad Retirement benefits without the debtor filing a claim.
• State exemptions (some automatic): Many states protect additional amounts. New York exempts the greater of $3,600 or 240 times the state minimum wage. California generally provides an automatic bank-account exemption per judgment debtor.
• Child support and alimony: Payments received for child support are generally exempt from levies by other creditors
• Unemployment benefits: Protected in many states from private creditor seizure
• Workers' compensation: Protected under most state laws

The exemption process is not automatic for most state protections. The debtor must file a claim of exemption with the court within the statutory deadline — missing the deadline means losing the protection.

Levy vs. Garnishment vs. Lien

These three collection tools are often confused but serve different purposes:

• Levy: Physical seizure of property or funds. Takes the money now. A bank levy seizes cash; a levy on personal property involves a sheriff physically collecting assets.
• Garnishment: Ongoing diversion of income. Wage garnishment takes a percentage of each paycheck until the debt is paid. Continuous, not one-time.
• Lien: A legal claim against property. Does not seize anything immediately — it attaches to the property so the debt must be satisfied when the property is sold or refinanced. Judgment liens can attach to real estate automatically in some states.

A creditor can use all three tools simultaneously: garnish wages, levy bank accounts, and place a lien on real property — all from a single judgment.

IRS Tax Levies

IRS levies operate under different rules than private creditor levies:

• No court order needed: The IRS has statutory authority under IRC § 6331 to levy without going to court. They must send a Final Notice of Intent to Levy (Letter 1058 or LT11) at least 30 days before levying.
• Continuous levy authority: IRS levies on wages and certain recurring payments are continuous. Wage levies generally take amounts above a calculated exempt amount each pay period until released.
• Collection Due Process: Taxpayers have the right to a CDP hearing before the IRS Office of Appeals to challenge the levy or propose alternatives (installment agreement, offer in compromise, currently-not-collectible status).
• Release: The IRS must release a levy if the tax is paid, the collection period expires (10 years from assessment), or the levy is creating economic hardship that prevents the taxpayer from meeting basic living expenses.