Can the State Take Money From My Bank Account?
A state can access a bank account for certain debts through a regulated process. This action is governed by rules that protect specific funds and provide response options.
State governments can take money directly from a person’s bank account to satisfy certain outstanding debts. This action, known as a bank levy, is a collection tool used as a final step after other attempts to collect the debt have failed. Understanding the reasons behind a levy and the steps involved can provide a clear path forward.
Reasons a State Can Levy a Bank Account
A state’s ability to levy a bank account is restricted to specific types of overdue obligations. The most common trigger for a state-level bank levy is unpaid state taxes. This includes personal income tax, sales tax collected by a business but not remitted to the state, or other state-administered taxes.
Another primary reason for a state-initiated levy is to collect past-due child support payments. State child support enforcement agencies work to ensure that court-ordered financial support is provided to children. When a parent falls significantly behind on these payments, the agency can use a levy to seize funds and redirect them to the custodial parent or guardian.
State courts can also authorize a levy to satisfy a judgment. If an individual loses a lawsuit in a state court and is ordered to pay a sum of money but fails to do so, the winning party can seek a court order to levy the debtor’s bank account. This applies to unpaid court fines, fees, or restitution ordered as part of a criminal sentence.
Finally, other state agencies can use levies to reclaim money owed to them. For instance, if an individual received unemployment benefits they were not entitled to, the state’s workforce or labor department may issue a levy to recover the overpayment.
The Bank Levy Process
The process of a state levying a bank account follows a defined legal sequence. The process begins long before the account is frozen, with the state agency sending multiple written notices. These communications will detail the specific debt, the amount owed, and a clear warning of the state’s intent to pursue a levy if the debt is not resolved, giving the individual an opportunity to pay or dispute the debt.
If the debt remains unpaid after these warnings, the state agency will issue a formal levy order directly to the financial institution where the individual holds an account. The notice specifies the name of the debtor and the exact amount of money to be seized. The bank’s role is to immediately freeze funds in the account up to the amount specified in the levy.
Once the levy order is received, the bank freezes the corresponding amount of money in the account. This means the account holder cannot withdraw the frozen funds, and any outstanding checks or automatic payments drawing on those funds may be returned unpaid. The money is not immediately transferred to the state, as federal and state laws provide for a holding period, often around 21 days.
This holding period provides a window for the account holder to act. If the individual takes no action and the holding period expires, the bank is legally obligated to remit the frozen funds to the state agency to satisfy the debt.
Protected Funds and Exemption Limits
Not all money in a bank account is subject to a state levy, as certain funds are legally protected. Federal law provides protections for specific benefit payments, including Social Security, Supplemental Security Income (SSI), veterans’ benefits, and federal disability payments. When a bank receives a levy order, it must review the account’s deposit history for the preceding two months. If it finds any directly deposited federal benefits, it must automatically protect the sum of those deposits or the current account balance, whichever is less.
Beyond federal benefits, many states also exempt other specific sources of income from seizure. Protected funds can include workers’ compensation benefits, unemployment insurance payments, and funds from certain public or private pension plans. Child support payments received by a custodial parent are also protected from levies initiated by that parent’s own creditors.
Some states also establish a minimum protected account balance. This means a certain amount of money in the account is automatically exempt from seizure, regardless of its source. This protected amount can vary significantly, with some states setting it at a few hundred dollars while others may protect a few thousand.
These protections are not always absolute, as the nature of the underlying debt can sometimes override them. For example, if the levy is specifically to collect overdue child support, some standard exemptions may not apply.
Steps to Take After a Levy Notice
Upon receiving a levy notice or discovering a frozen account, contact the state agency that issued the levy. This allows you to confirm the details of the debt, understand why the levy was issued, and learn what options are available to resolve the situation.
If you believe some or all of the frozen funds are from a protected source, you must claim your exemptions, often by filing a “Claim of Exemption” form with the court or notifying the levying agency. You will need to provide documentation to prove the source of the exempt funds, such as a Social Security award letter. Acting quickly is important, as there are strict deadlines for filing an exemption claim.
Negotiating a resolution with the state agency is a viable path to getting the levy released. Many agencies are willing to work with individuals who demonstrate a commitment to paying their debt. You may be able to set up an installment agreement to make regular monthly payments. In some cases, an Offer in Compromise may be possible, allowing you to settle the debt for a lower amount if you can demonstrate significant financial hardship.