When a creditor wins a judgment against you, they can use their legal authority to recover their money by taking it directly from your bank accounts. Simply put, they ask your bank or credit union to hold back some of your account funds and give them to the creditor to settle your debt. But there are rules to follow. Creditors cannot just go into your accounts without going through the proper legal process, like obtaining a court order. 

Despite this, if you think something's wrong or have some exemptions that apply to your situation, you usually speak up and contest the garnishment. In this situation, it is wise to talk to a legal expert. He/she can give you advice tailored to your specific circumstances. 

How Creditors Obtain Funds From Your Accounts 

A creditor must first take legal action by filing a lawsuit and winning a judgment against you to access your bank accounts. This involves proving that you owe a debt and have not met your payment obligations. Once creditors secure a judgment in their favor, they can request a specific court order to enforce debt collection. 

Obtaining a judgment empowers creditors with legal tools to compel debt repayment. While debt reflects an agreement between you and the creditor, compliance is typically voluntary. However, a creditor's successful judgment equips them with various legal mechanisms, including the intimidating power to levy funds directly from your bank or credit union account. 

You are typically warned about these potential consequences in the Summons accompanying the initial Complaint when the creditor initiates legal proceedings. This Summons serves as notice, stressing that a failure to respond promptly could result in a default judgment against you. Subsequently, your assets, wages, and bank accounts could be subject to collection without further court notice. 

In California and most other states, the authority to levy on your bank or credit union accounts is one of the legal powers granted to creditors. This authority is detailed in the California Code of Civil Procedure, CCP 700.140, explicitly addressing the levy on deposit accounts. 

Who are Judgment Creditors? 

Upon securing a money judgment, the creditor becomes a "judgment creditor." He/she can employ several collection techniques to enforce the judgment and compel the debtor to meet his/her financial obligations. 

In addition to using a bank levy as a collection tool, a judgment creditor has several other avenues at their disposal, which include: 

  • Wage garnishment — The creditor can directly intercept funds from the debtor's paycheck. 
  • Property sale — Depending on local laws and the nature of the debtor's assets, the creditor could initiate the sale of property. It can include items like real estate or vehicles. 
  • Cash register levy or till tap — In certain situations, the creditor can authorize law enforcement, typically the sheriff, to remove money directly from a cash register. 

Notably, specific creditors, like the IRS (Internal Revenue Service), possess the authority to levy a bank account without the necessity of prior court proceedings. This grants them expedited access to your bank funds, bypassing the need for a formal court judgment. 

Can Creditors Access Your Accounts They Did Not Know About? 

Creditors must know the financial institution where you maintain your bank account to execute a levy. Randomly accessing accounts without this essential information is not feasible. 

Notably, courts do not play a role in directly collecting money on behalf of creditors. Instead, creditors, after securing a judgment, are responsible for providing the necessary documentation to the court for review and approval. This documentation typically contains an order to levy your bank account. 

Creditors employ diverse methods to obtain the required bank account information. This can include: 

  • Data acquired during your initial credit application.
  • Credit inquiries.
  • Your payment history, or
  • Other information that you could have disclosed. 

Additionally, creditors could employ investigative techniques like asset searches or skip tracing to pinpoint the location of your accounts. Notably, major banks are often the focus of creditor efforts due to their widespread use among account holders. This increases the probability of identifying the correct financial institution. 

In California, CCP 684.115 mandates that financial institutions with more than nine branches establish a central location for the service of legal documents, including the execution of account levies. This legislative requirement streamlines the process for creditors, enhancing the efficiency of levying accounts held at such institutions. 

Financial institutions are not obligated to inform account holders or other relevant individuals regarding the receipt of legal process requests. This provision is intended to safeguard the privacy of account holders. 

Once a creditor successfully secures a judgment against you, your bank accounts become susceptible to levy, primarily due to the creditor's utilization of various methods to obtain your financial information and the established legal procedures for debt collection. 

The Steps Involved In a Creditor Levying on My Bank Account 

After securing a judgment against you, the creditor takes steps to collect the owed debt through a legal instrument called a "Writ of Execution." This document specifies the county where your bank account is located and designates the amount to collect. It is then submitted to the same court that issued the judgment, setting in motion the process of asset seizure to satisfy the debt. 

Essentially, a Writ of Execution is a court-issued legal document that grants the creditor the authority to enforce a judgment. In this case, it is used to collect a debt or monetary judgment awarded by the court. 

Once the court approves the Writ of Execution, the clerk officially issues it. It serves as a court order that empowers the creditor to pursue the collection of the debt. Typically, this Writ is forwarded to the sheriff's office in the county where your bank is situated. Sometimes, a process server could also be involved, following local guidelines and requirements. 

The process server's role usually involves delivering a copy of the Writ of Execution to your bank, accompanied by an official "Notice of Levy." As part of due process, you typically receive copies of these documents, ensuring you are informed about the impending levy action. 

A Notice of Levy is a distinct legal document issued to third parties, like financial institutions, employers, or other entities holding assets or income on behalf of a debtor. It notifies the parties that they are legally obligated to release these assets or income to the creditor to fulfill the outstanding debt. 

A debt collector or creditor typically initiates this document following the successful acquisition of a judgment against a debtor through a court of law. It plays a fundamental role in the lawful process of debt collection. 

Crucially, as soon as your bank receives these vital legal documents, the Writ of Execution and Notice of Levy, they are legally bound to freeze the funds in all your accounts up to the total amount of the judgment. Consequently, you cannot withdraw, and any checks or electronic payments associated with the account will be declined during this period. 

Options Available to You to Protect Some or All Your Funds in Your Accounts 

Securing your deposit account funds is paramount, particularly when confronting potential debt collection endeavors or legal proceedings. Despite this, four methods exist to shield some or all of the money within your deposit accounts. These approaches not only provide immediate respite from ongoing bank levies but also furnish enduring solutions for debt management: 

  1. Exception of Money 

In September 2020, CCP 704.220 came into effect. The law automatically protects a set amount of money in your accounts, safeguarding it from potential levies. This legal provision is subject to annual adjustments. From July 1, 2021, to June 30, 2022, this protected sum is fixed at $1,826. This provision was confirmed in the All County Letter 21-55 by the California Department of Social Services. 

It is crucial to understand that a levy applies solely to the balance in your accounts at the financial institution as of the date it is executed. This provision is specified in the California Code of Civil Procedure 700.140(b). Therefore, if the amount in your accounts on that particular date does not exceed $1,826, your entire account balance remains shielded from these legal actions. This provision ensures the security of your funds within this specified limit. 

What if the funds in your account exceed $1,826? 

If your funds exceed $1,826, the second solution applies. 

  1. Protections When Your Funds Exceed $1,826 

The second short-term solution pertains to the standard exemptions before the legal changes effected in September 2020. This significantly enhances safeguarding your assets in the face of potential debt collection or legal actions. 

Thanks to the new law, CCP 704.220(b), the $1,826 protection does not curtail or diminish a judgment debtor's entitlement to any other exemptions provided by state or federal law. This implies that judgment debtors can now potentially combine the $1,826 protection with the regular exemption amounts that were in effect before this alteration. 

Previously, judgment debtors often had the option to claim exemptions, effectively securing some or even the entirety of their bank account funds. With the new law, these customary exemption amounts are now an addition to the $1,826 protection. This modification provides heightened safeguards for a portion of your funds. 

Making the Usual Claim 

You must act swiftly to secure exemptions beyond the automatic $1,826 safeguard. 

If you were personally served with the Notice of Levy, you have a 15-day window to complete and submit a Claim of Exemption to either the sheriff or the process server responsible for delivering the levy documents. 

If you received the Notice of Levy through mail, you have a slightly extended period of 20 days to file your Claim of Exemption. The California Code of Civil Procedure 703.520 dictates this timeframe. 

Per this section, you must adhere to the following guidelines when submitting a claim for exemption. Other than meeting the timelines above, you must ensure that: 

  • The claim is in writing and executed under oath.
  • Essential details are included, namely: 
  1. The names and addresses of both you, the judgment debtor, and the claimant.
  2. A comprehensive description of the property being asserted as exempt.
  3. A reference to the relevant legal provision allowing for the exemption.
  4. A clear and concise statement of the factual basis supporting the claim.

Failure to file a claim of exemption within the stipulated timeframe could result in the creditor proceeding with the property seizure. 

Furthermore, it is essential to note the following considerations when initiating a claim for exemption: 

  • The levying officer could request a financial statement from you.
  • The creditor retains the option to contest the claim of exemption.
  • In some instances, you could be required to appear in court to present your case effectively. 

The fate of your exemption request rests on the creditor's response. Should the creditor refrain from objecting to your exemption claim within the stipulated timeframe, you will be granted the exemption you seek. 

However, if the creditor objects, the court will take up the matter. 

What if the exemptions you are eligible for do not cover all of my debts? 

You can then access the third solution. 

  1. Protection Under the California Code of Civil Procedure 704.225 

California Civil Procedure Section 704.225 deals with a crucial aspect of exemptions concerning a judgment debtor's deposit account. This rule allows money in this account, which is not already exempt according to the chapter's predefined rules, to be protected to ensure the financial well-being of the judgment debtor, their spouse, and dependents. 

This provision introduces flexibility by requiring the court to assess each judgment debtor's financial situation individually. The primary aim is to guarantee that the debtor and their family maintain sufficient financial support. 

Note: This standard is somewhat subjective, relying on the phrase "to the extent necessary for support." This gives judges discretion to determine the exemption amount based on the specifics of each case. 

This provision can help judgment debtors safeguard more funds than predefined exemption amounts would allow. However, the outcome can vary based on judges' interpretations and applications of this standard. 

  1. Bankruptcy Protection 

Bankruptcy serves as a remedy for resolving financial challenges, including dealing with bank levies. 

As soon as you initiate bankruptcy proceedings, an automatic stay kicks in. This legal mechanism immediately stops all collection actions, whether bank levies, wage garnishments, lawsuits, or creditor harassment. 

If a bank levy is already underway and the sheriff or creditor has gained control of the funds, your attorney can employ several strategies to potentially recover these funds: 

  • Preference action — Your attorney could file a preference action in bankruptcy court, particularly if the levied amount exceeds $600 and the levy occurred within the past 90 days. A successful preference action can legally compel the creditor to return the levied funds to you. 
  • Motion for turnover of personal property — When the sheriff's office holds the funds, you can request the release of these funds. The sheriff could either release the funds directly to you or request a court order for their return. If you have a legitimate legal claim to the property, your attorney can initiate a Motion for Turnover of Personal Property to expedite the funds' return. 

In Chapter 7 bankruptcy, some of your non-exempt assets could be liquidated to satisfy your creditors. However, certain assets are shielded through exemptions. You could recover funds classified as exempt from a bank levy. 

On the other hand, Chapter 13 bankruptcy involves creating a repayment plan over several years to settle your debts gradually. This plan can encompass payments to catch up on missed mortgage or car loan payments. If your bank account funds were seized through a levy, you could often include them in your repayment plan, allowing you to retrieve them over time. 

If a creditor received funds through a bank levy shortly before you filed for bankruptcy, the trustee could reclaim these funds as preference payments. These recouped funds are then distributed evenly among your creditors. 

Additionally, you can reaffirm a debt or redeem the property in specific situations. 

Reaffirmation involves committing to continue repaying a particular debt, while redemption permits you to repurchase specific assets at their current market value, frequently at a reduced amount. This can provide a means to regain control of assets subject to a bank levy. 

Find an Experienced San Diego Bankruptcy Lawyer Near Me 

If you find yourself dealing with a bank levy and require the expertise of an experienced bankruptcy attorney to safeguard your financial interests, reach out to the San Diego Bankruptcy Attorney immediately. Your financial security is of the utmost importance, and seeking legal assistance can significantly impact you. 

Schedule a consultation with us today by contacting us at 619-488-6168. We will then comprehensively assess your financial circumstances and identify the most effective strategies for your case. 

You are not alone in facing this challenge. Our proficient bankruptcy attorneys can be your advocates and provide invaluable guidance during this demanding period.