Can a Lien Be Placed on a Bank Account?

A lien can be placed on a bank account, which is a creditor’s legal claim against property as security for a debt. The lien is enforced through a levy, the actual act of taking property, like money in a bank account, to satisfy the debt. When a bank receives a levy notice, it is legally obligated to freeze the funds in the specified account. If the matter is not resolved, those funds can be turned over to the creditor.

Creditors Who Can Place a Lien

The authority to place a lien on a bank account differs between government entities and private creditors. Government agencies, like the Internal Revenue Service (IRS) and state tax authorities, possess broad power to collect unpaid taxes. These entities can initiate a levy without first securing a court judgment. The IRS, for instance, can issue a levy directly to a bank after providing the taxpayer with required notices, including a Final Notice of Intent to Levy.

Private creditors, such as credit card companies, medical debt collectors, and lenders for personal loans, must follow a more structured legal path. Before they can access funds in a bank account, they are required to file a lawsuit and win a court judgment that validates the debt. Only after obtaining this court order can they proceed with a bank levy.

The Judgment and Levy Process

For a private creditor to enforce a lien, the process begins when the creditor files a lawsuit against the debtor for the unpaid amount. The debtor is then formally notified of the lawsuit through a summons, which provides a timeframe to respond. Ignoring this summons results in a default judgment, where the court rules in the creditor’s favor without the debtor’s participation.

Once a creditor obtains a favorable court judgment, they must ask the court for a document to enforce it, often called a Writ of Execution or Writ of Garnishment. This writ is a court order that directs law enforcement, such as a sheriff or marshal, to execute the judgment. The creditor provides this writ to the sheriff, who then serves it on the debtor’s bank, compelling the bank to act.

Upon receiving the writ, the bank is legally required to freeze the funds in the debtor’s account, up to the amount specified in the levy. The bank will then send a notice to the account holder, such as a Notice of Levy (a common form is EJ-150), informing them of the action.

Exempt Funds and Account Holder Protections

Certain funds are legally protected from being seized by creditors through a bank levy. Federal regulations provide specific protections for government benefits paid via direct deposit. Under a Department of the Treasury rule, when a bank receives a garnishment order, it must review the account for any directly deposited federal benefit payments received within the previous two months. The bank must automatically protect this amount or the current balance, whichever is less.

The federal benefits covered by this protection are shielded from the claims of private creditors and include:

• Social Security
• Supplemental Security Income (SSI)
• Veterans benefits
• Federal employee and railroad retirement benefits
• Federal student aid

The protection is automatic, meaning the account holder does not need to file any paperwork to protect the two-month value of these deposits.

Beyond these federal protections, states have their own laws that exempt certain types of funds or portions of income from seizure. These can include protections for wages, public assistance, and child support payments. An account holder may need to formally claim these state-level exemptions if a creditor attempts to levy funds beyond the automatically protected federal benefits.

Responding to a Bank Levy Notice

Upon receiving a notice from a bank that an account has been levied, it is important to act promptly. The notice will contain details about the levy and the deadlines for response, which are often very short. An account holder has a period of around 10 to 15 days to formally object to the seizure of funds they believe are legally protected.

The primary tool for objecting is a “Claim of Exemption” form. This legal document, often identified by a form number like EJ-160, is used to formally assert that some or all of the money in the frozen account comes from a source that is exempt from seizure under federal or state law. This is how an account holder notifies the creditor and the court that the funds are protected Social Security benefits, disability income, or another exempt asset class.

The completed Claim of Exemption form must be filed with the levying officer, who is the sheriff or marshal identified on the levy notice. A copy is also provided to the creditor. After the form is filed, the creditor has a short period, about 10 days, to either accept the claim and release the funds or file an opposition with the court. If the creditor opposes the claim, a court hearing will be scheduled where a judge will decide whether the funds are exempt from seizure.