How to fight a creditor’s account levy

A bank levy is a legal tactic lenders, and creditors can sometimes use to collect the money you owe them if you fail to make payments. This is a freeze or a legal hold on your bank account resulting from a lawsuit that gives creditors the right to take the funds directly from it. While your account is frozen until the debt is paid, the money in your account cannot be accessed by you.

If your account has been levied, you may be able to fight the account levy or resolve it more promptly.

1. Prove that the creditor made an error

Creditors sometimes make mistakes. If you don’t believe the debt is yours or think the amount is incorrect, send a debt validation letter via certified mail. The letter should state that you dispute the debt’s validity and would like documentation that verifies it.

If you have already paid off the debt, find proof that supports your case. This can be a letter, receipt or statement you received once you made your last payment.

2. Negotiate with the creditor

The debt-collection process can be time-consuming and expensive, so lenders may prefer working with you over levying your bank account. An attorney or credit counselor can help facilitate these negotiations.

Your options will depend on the lender and may include a modified payment, a lower interest rate or a hardship program. Negotiations may also prevent the creditor from levying more funds. In some cases, it may be worth looking into a debt relief company — though there are fees.

3. Show that you’ve been a victim of identity theft

If someone fraudulently applied for the debt in question, you’ve been a victim of identity theft. You can fight the levy by proving that someone else received the funds.

An identity theft report is a great way to prove you’ve been a victim of identity theft. To get one, submit a theft complaint to the Federal Trade Commission (FTC) via IdentityTheft.gov. Then, print the report called “Identity Theft Affidavit.” Next, file a police report and attach it to the Identity Theft Affidavit.

4. Check the statute of limitations

Creditors have a certain time frame, called the statute of limitations, to legally collect debt from you. Check your state and local laws for the specific type of debt. Reach out to a lawyer if you’re unsure or need clarity. If this time frame has passed, your creditor might not be allowed to collect money from your bank account.

5. File bankruptcy

You may be able to recoup some or all of the money if you file for bankruptcy. This option varies from state to state and should be a last resort. If you can “exempt” those funds levied from your bank, the creditor could be required to return the money to you. A bankruptcy attorney in your area will be able to tell you whether some, none or all of the funds could be returned after you file bankruptcy papers.

6. Contest the lawsuit

Contesting the creditors’ lawsuit for the levy may only be possible if the creditors’ judgment is recent enough to contest. However, if you were not properly served, you could have the judgment set aside. This can be done without professional legal help, but it is a complicated process and will not ensure that the funds will be returned. Consult an attorney to determine if this is a good option.

7. Open a new account

While your levied account is frozen, you can open a new one. Be sure to move any automatic bill payments that you’ve set up to the new account so that you don’t miss any payments and risk another levy.

Opening a new account may come with additional complications. Speak with a professional who understands how to best navigate the situation ahead of applying for a new account.

Next steps

A drained bank account is the last thing you want to see. Still, you might be able to recoup your money even if a creditor has levied your funds.

If you think the creditor made an error or you’ve been a victim of identity theft, contact the lender and explain the situation. Otherwise, a lawyer or a credit counselor can help determine the next steps appropriate for your situation.