Through a bank levy, a creditor you owe seizes payment from you by deducting it directly from your checking or savings account. Creditors can levy your accounts repeatedly until they successfully recover the entire balance you owe. A bank levy does not have a direct impact on your credit scores. The financial events connected to the levy, however, can leave your good credit in shambles.
With the exception of the United States government, all creditors must sue debtors and obtain legal permission from a judge before levying consumer bank accounts. The court’s decision following a lawsuit is known as a judgment. Creditors request a certified copy of this judgment, and use it when filing a bank levy. After the court awards its judgment, the county clerk’s office formally records the judgment as a matter of public record. Credit reporting agencies pull the information from the court’s public record and add it to the debtor’s credit report. A court judgment is a derogatory credit entry. Should a creditor receive a judgment against you, your credit score will drop as soon as the reporting agencies add the information to your credit record.
If you pay your debts as agreed, your creditors have no reason to sue you and seek a bank levy. Bank levies are the result of numerous missed payments that eventually leave your account with the creditor in default. The creditor then sues and uses a bank levy to collect the missed payments. Missed payments have a considerable negative impact on your credit. MSN Money notes that a single missed payment notation on your credit report could result in your credit score dropping by 100 points or more.
Lack of Funds
When a creditor institutes a bank levy, it serves a writ of garnishment on your bank, forcing your bank accounts into a mandatory freeze. The purpose of the freeze is to provide you with ample time to contest the impending levy. Unfortunately, you cannot access any money that was in your bank account when it was frozen. This could leave you unable to pay other creditors on time, resulting in missed payment notations on your credit report. The bank typically does not lift the freeze until after the creditor levies the account. Depending on how much you owe, a creditor’s levy may clean out your entire bank balance. Like a bank account freeze, this could leave you making payments late to other creditors.
The Internal Revenue Service, as a government agency, does not need a judgment against you to levy your bank accounts; it only needs a tax lien. The IRS files tax liens against consumers who owe tax debts and do not make payment arrangements. Tax liens automatically attach to each of your assets, including your bank account. While a tax lien gives the IRS the ability to levy your bank account, it also appears on your credit report. Tax liens, like judgments, are public records that damage your credit rating as soon as they appear within your history. Even worse, unpaid tax liens can remain a part of your credit record for up to 15 years.
- Bankrate; Creditors Can Garnish Your Bank Accounts; Justin Harelik; November 2006
- MSN Money; 5 Ways to Kill Your Credit Scores; Liz Pulliam Weston; November 2009
- Neighborhood Economic Development Advocacy Program: Frozen Bank Accounts
- IRS: File a Notice of Federal Tax Lien
- Experian: Frequently Asked Questions
- Consumer Financial Protection Bureau. "Can a Debt Collector Garnish My Bank Account or My Wages?" Accessed Dec. 5, 2019.
- Consumer Financial Protection Bureau. "What Is a Judgement?" Accessed Dec. 5, 2019.
- Internal Revenue Service. "What Is a Levy?" Accessed Dec. 5, 2019.
- Federal Trade Commission Consumer Information. "Garnishing Federal Benefits," Accessed Dec. 5, 2019.
- Office of the Comptroller of the Currency. "What Can I Do If My Bank Account Is Frozen and It Includes Social Security or Other Federal Benefit Payments?" Accessed Dec. 5, 2019.
- Office of the Comptroller of the Currency. "Are My Federal Benefits Automatically Protected By My Bank From a Garnishment Order?" Accessed Dec. 5, 2019.
- Internal Revenue Service. "What You Need to Know: The Federal Levy Payment Program," Accessed Dec. 5, 2019.
- Federal Trade Commission Consumer Information. "Coping With Debt: Self-Help," Accessed Dec. 5, 2019.
- Consumer Financial Protection Bureau. "What Is the Best Way to Negotiate a Settlement With a Debt Collector?" Accessed Dec. 5, 2019.
- Federal Trade Commission Consumer Information. "Coping With Debt: Debt Relief Services," Accessed Dec. 5, 2019.
- Consumer Financial Protection Bureau. "My Debt Is Very Old: Can Debt Collectors Still Collect?" Accessed Dec. 5, 2019.
Ciele Edwards holds a Bachelor of Arts in English and has been a consumer advocate and credit specialist for more than 10 years. She currently works in the real-estate industry as a consumer credit and debt specialist. Edwards has experience working with collections, liens, judgments, bankruptcies, loans and credit law.