Levy on Banking Institution Accounts

Court Order Delicatessen

Court Order Delicatessen (Photo credit: afagen)

The term “levy” can be associated with a variety of different usage including waging war, imposing a fine, seizing money in order to pay of tax liability, conscription into military service,and satisfying a monetary judgment. For the purpose of this blog, I am going to use the term in relationship to satisfying a monetary judgment.

A levy, in the latter sense, is a legal seizure of your property to satisfy a debt. Levies are different than liens. A lien is a claim used as security on a debt, but a levy can seize the property with a court ordered judgment in order to satisfy the debt.

In order to have the potential to levy someone’s property other than your own, unless you are a banking institution with a contract to cross collateralize accounts, you cannot levy the property without a court order to do so. That means anyone wanting to levy property, including bank accounts, must file and win a lawsuit in a civil court of law. In most states, they must win the lawsuit within the jurisdiction of where you live.

Credit Card debt is one of the most common types of debt satisfied by a levy. Credit collection agencies collecting for credit card companies are more often than not in today’s market, junk debt buyers. They will often file a lawsuit to collect on a defaulted credit card in order to collect the principal, penalties, and fees associated with the debt. Many of these lawsuits filed go uncontested by down and out debtors who don’t have the money or knowledge to protect themselves from the lawsuits.

If the collection agencies get wind of where you bank, they can take the official judgment from the court in hand, and instruct the bank they have the legal right to seize or empty the account to satisfy the debt described on the judgment. They can only take the amount out of any of your banking accounts that they have won in court. The bank, by law, will be required to give them the money. Sometimes, this type of action will result in the account being temporarily frozen until the bank can substantiate the claim, but don’t always count on it.

Other instances of experiencing a levy is when a banking institution has the ability to cross collateralize your account. Credit Unions are notorious for creating this type of banking relationship with its customers. After signing up for one or more banking accounts and making a loan with the same institution, the contracts for application of accounts or loans often give the institution the ability to cross collateralize.

This means that when you default on the loan, you have agreed to allow the banking institution, by contract, to seize or levy any of the other accounts you hold in order to satisfy the defaulted loan. That means they can take any or all of the money out of every account you hold with them until the loan debt is satisfied.

Even if you file for bankruptcy protection after the fact, levied property is not going to return to the bankruptcy estate because the asset was legally taken by law. If you voluntarily pay the money to a credit card company or some other banking institution you owe a debt, the bankruptcy court could get the money back because the debt payment would be viewed as a preferential treatment in relationship to all your other creditors.

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