A bank levy is when a creditor has obtained a judgment against you for a debt and then serves that judgment on your bank. The bank is then required to freeze all money not exempted and send those funds to the creditor. Many states allow certain amounts and types of funds in the bank account to be exempted or protected and each state is different.
In Tennessee, you can exempt social security, unemployment compensation, Families First benefits, Veteran’s benefits, disability, illness or a pension that vests as a result of a disability, some alimony, and some child support.
A creditor does not have to tell you or warn you before they levy on your bank account. The law considers you to be aware this can happen if you have been served a lawsuit and a court has granted the creditor a judgment.
I remember a client who came to me because she had just received a little over $5,000 in student loan money and a creditor levied on her bank account. The student loan money was not protected under state law, it was not exempt, but I was able to file a chapter 7 for her and get most of the funds back so she could pay for her tuition that semester.
You should be aware that if a creditor levies on your bank account and you file a bankruptcy in the 90 days after the levy, sometimes the money can be exempted in the bankruptcy and returned through a process of asserting it is a preferential transfer. You should always seek the advice of a bankruptcy attorney if you have received notice of a bank levy as there are both state law and bankruptcy law remedies.
Cynthia T. Lawson is the Managing Partner of the Bond & Botes Law Offices location in Knoxville, Tennessee. She holds a Bachelor of Science from East Tennessee State University, and a Juris Doctorate from University of Memphis, Cecil C. Humphreys School of Law. She currently serves as a Mentor for the Moment in bankruptcy.Read her full bio here.