Bank Levies: What Are They and How Can You Avoid Them?
The dramatic increase in the number of bank levies on customer accounts over the past several years is an unfortunate byproduct of current economic conditions. And, despite the fact that a financial institution account holder should have a fairly good idea that this course of action is imminent, most express anger and frustration at the financial institution immediately upon discovering that a levy has been placed on their account.
What are bank levies? How do they find their way to your account? What can you do about them? And most important – How do you avoid them in the first place?
What is a Bank Levy?
Bank levies are usually issued by a court officer when monies owed by an account holder to another party (i.e., credit card company, child support recipient, mortgage holder, etc.) have not been paid and all attempts at collection have been tried and proven fruitless. Sometimes the actual initiator of the levy isn’t readily apparent because the entity listed on the levy is a third party, such as a collection agency, on behalf of the party to whom the money is owed.
Bank levies can also be IRS or state-ordered when federal, state, payroll and other types of tax payments remain uncollectible by any other means. While standard procedures and protocols for processing levies may differ from state to state, typically what happens is this: the financial institution is required to freeze and debit an individual or business account as soon as the levy is received. Banks generally take their fee for administering the levy from whatever is in the account, prior to satisfying the levy. After this administrative fee is applied, whatever remains in the account, is debited up to the amount owed, if available, and retained in the bank until a Turnover Request is received. A copy of the levy is sent to the account holder and notice of the levy appears on the customer’s monthly bank account statement.
What happens if there are insufficient funds in the account to satisfy the levy? Short answer? It depends upon the particular state. For example, in New Jersey, the amount of money in the account, as of the exact date and time that the levy is received, is debited to satisfy any or all of the total amount owed. If there isn’t enough money, a new levy is required to obtain additional funds from the account. In other states, such as Pennsylvania, the entire amount of the levy is frozen until it’s satisfied.
How Do “They” Find My Account?
With the increase in online banking, ACH transactions, and other electronic banking activity, tracking down an account has become quite sophisticated. According to John Kauchak, Executive Vice President/Chief Operating Officer for Unity Bank, a community bank headquartered in Clinton, NJ, “We get a stack of levies every week from the courts in the counties served by our branches. We have to look at each one to see if the levy applies to one of our customer accounts and take action when we find one that is. This task has really become daunting over the past year when we saw a 20% increase in the number of ‘hits’ we had. The economy has a lot to do with the numbers as more and more people are out of work and unable to meet their obligations.”
Can’t I Just Run Into My Bank and Get My Money Before the Bank Applies the Levy?
Short answer - no, you can’t. A levy is a court or government–ordered action. Ignoring it is akin to lying a witness stand. The moment it comes into the financial institution, that institution is bound to honor it and freeze the applicable funds. It’s really just that simple.
But What if the Court Made A Mistake? What if the Levy Originator is Actually At Fault? The bank is obligated to continue with the original court order until a new court order is issued and received. Many customers do not understand this. They believe that if they are long-term customers, they are completely within their rights to expect that the bank will listen to them and do as they say. The court and the government, however, have the upper hand in this circumstance.
One thing to keep in mind – a bank cannot levy on social security, pension or unemployment funds unless they are commingled with other monies in an account. If they are deposited into a separate account, the bank cannot levy on those funds.
What Can I Do to Avoid a Levy in the First Place?
Never ignore an attempt to collect a debt, whether or not you feel it’s justified. Make every attempt to resolve the issue with the person or entity trying to collect the debt from you. Ignoring an attempt to collect the debt doesn’t make it go away, especially if the amount owed is substantial. It just makes the creditor angry, frustrated, and more willing to pursue any means to collect the debt.
Another reason to respond to requests for payment? A levy (for a valid or invalid debt) that appears on a bank statement can affect your ability to get credit because most loans require that you produce recent bank statements.
About Unity Bank
Unity Bank has branches in Hunterdon, Middlesex, Somerset, Union and Warren counties in New Jersey, and Northampton County in Pennsylvania. The bank began as First Community Bank in 1991 with two branches and thirty employees. It now has over one hundred and sixty employees.
For more information about Unity Bank, call Rosemary Fellner at 800.618.BANK(2265), or visit www.unitybank.com.
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