My Bank Account was Levied—What Now? How to Stop Bank Levies and Have Levied Funds Returned to You by Filing for Bankruptcy Protection.

Chances are that if your bank account was levied, you were already aware that you owe an unpaid debt and, most likely, were served in the recent months with a judgment entered on a lawsuit. In Minnesota, many—but not all*—bank levies are typically the result of collection on a judgment for unpaid debts owed to the judgment creditor.

*Some creditors such as the taxing authorities, small business administration loans and other government-funded debts are permitted under law to levy bank accounts and garnish wages without having to first obtain judgment in a court of law.

The typical scenario leading up to a bank levy is that a defaulted unsecured debt such as a credit card or medical bill falls into collection and eventually ends up with a local law firm that commences a lawsuit by serving you with a summons and complaint. If that summons and complaint goes unanswered by the debtor, the creditor will typically obtain a judgment within a month or two for the amount owed plus any allowed attorney fees, interest and other costs. This judgment is then docketed in the county you reside and the creditor’s attorney soon thereafter commences collection efforts including wage garnishment and bank levies. You may also be served with post-judgment discovery asking you where you work, bank and for other details of your income that will aid the creditor in collection on the judgment.

Unlike a wage garnishment where prior notice is required, a bank levy can happen at any time without notice as soon as the judgment has been entered. If you are like most people, you probably have a bank account at any of the major Minnesota banks (US Bank, Wells Fargo, TCF, etc.) and/or you previously disclosed where you keep bank accounts when you originally applied for the credit card. All a judgment creditor’s attorney needs to do to levy your bank account is to serve a subpoena on each bank that they think you may own an account and your account is then levied for all money up to the amount that you owe on the judgment. A bank account levy is a serious financial set-back for most families, as it unexpectedly impairs your ability to pay your rent or mortgage due the next month. On some occasions, the levied funds may be returned without the need to file for bankruptcy but only if you can prove to the judgment creditor’s attorney that the money levied came from exempt sources such as social security or other need-based assistance.

For more information on lawsuits and judgment collection, see You’ve Just Been Served with a Lawsuit, Now What? and Collection on the Judgment – What to Know if You Are Facing a Wage Garnishment.

A bank levy is a common precursor to filing for bankruptcy relief. Either chapter 7 bankruptcy or chapter 13 bankruptcy will have the immediate effect of stopping all bank levies and wage garnishments. Additionally—and very importantly from a timing perspective—you may be able to get the levied funds returned to you if you act quickly. The general rule is that levied and garnished funds must be returned to you after you file bankruptcy if the following two criteria are met: 1) the total amount levied is at least $600 or more AND 2) you file bankruptcy within 90 days of the date that the levy subpoena was served on the bank, which is usually a day or two prior to the actual date the funds were levied from your account.  

Contact attorney Lynn Wartchow to discuss your bank levy and what you can do to have the levied money returned to you.

File Bankruptcy to Protect Your Wages and Other Earnings from Garnishment

From the moment that a bankruptcy petition is filed, the “automatic stay” is invoked and this automatic stay of legal proceedings affords many protections from collection activities, including wage garnishment on W-2 income, other income levies such as from 1099 income–usually earnings of self-employed persons or independent contractors–and bank account levies. In other words, the filing of chapter 7 bankruptcy effectively puts all collection activities and legal proceedings on immediate hold due to the automatic stay. Depending on the circumstances, the automatic stay can be lifted for various reasons but rarely, if ever, so that a creditor can continue wage garnishment or bank account levies. (One of the more common reasons for the bankruptcy court to allow the automatic stay to be lifted is for the foreclosure of a homestead that is in default and for which there is no proposal to cure the arrearages, for example through a Chapter 13 plan.)

Wage garnishment is a collection remedy that is usually only, but not always, available after a judgment has first been obtained or at a minimum after you have not responded to a summons and complaint previously served on you several weeks prior. If you have been served with a summons and complaint in a collection lawsuit and/or a judgment has been entered, you are likely also aware that a wage garnishment is headed your way. While most employees will receive notice of the wage garnishment prior to the garnishment taking effect via the next payroll, employers do not always provide prior notice of the upcoming garnishment and availability to claim potential exemptions from garnishment. While a debtor often has advance notice of a wage garnishment, you almost never receive notice of a bank levy until after it has already occurred.

For most people in Minnesota, a wage garnishment means that 25% of your net (“take home”) earnings will be garnished each payroll until the underlying debt is paid off. There are exemptions to wage garnishment available to some individuals meeting certain criteria.

Even if you are a self-employed or contract worker, 1099 non-wage income can still be garnished, especially if the garnishing creditor is aware of such income from previous disclosures made to them including in credit applications.

Bankruptcy puts an immediate stop to wage garnishment and all other collection tactics. In some cases, the last 90 days of wages garnished from you can be refunded by the garnishing creditor within weeks after the bankruptcy is filed.

Located in Edina, Minnesota, bankruptcy attorney Lynn Wartchow represents clients in all Chapters of bankruptcy in Minneapolis, St. Paul, Ramsey and Hennepin County, and throughout Minnesota.

Collection on the Judgment – What to Know if You Are Facing a Wage Garnishment

A frequent impetus for a Chapter 7 or Chapter 13 consumer bankruptcy filing is when a person is being actively collected on—usually in the form of a wage garnishment and/or a bank account levy—pursuant to a money judgment entered against them. Once a judgment is entered, the party owing money is called the “judgment debtor”. The entry of a judgment against a judgment debtor should come as little surprise, as it comes after that person has already been served with a summons and complain in a lawsuit claiming monetary damages owed to the judgment creditor. If the judgment debtor did not file a response within the prescribed time periods, which is a common scenario, the judgment creditor obtained a default judgment. Regardless of whether the judgment was entered by default or after hearing on the matter, the judgment creditor can take any numbers of actions to collect the amount owed pursuant to that judgment.

The two most common avenues to collect on a money judgment are to garnish either the debtor’s wages or the debtor’s account at a bank or other financial institution. Garnishment of a bank account is also referred to as “levy”. The process for each collection tactic is different. In order to garnish wages under Minnesota statute, the judgment creditor must serve notice of garnishment on the debtor’s employer (also called the “garnishee”), shortly after which the employer is required to withhold 25% of the debtor’s income for remittance to the judgment creditor.  While some government benefits such as emergency and medical assistance and other money such as child support and social security benefits are specifically exempt from garnishment, a judgment debtor’s wages and other earnings usually can be garnished up to 25% per pay period and until the judgment amount is fully satisfied.

Similarly for bank account levies, the judgment creditor serves a garnishment summons on the debtor’s bank to levy upon bank accounts in the debtor’s name up to the total amount owed on the judgment. This process usually transpires without any prior notice to the judgment debtor, who receives the opportunity to claim a portion of the levied funds exempt only after the funds have already been removed from the account. Unlike wage garnishment, a judgment creditor can take 100% of funds in the bank account up to the amount owed on the judgment. The judgment creditor may levy on the same bank account multiple times and also levy on multiple accounts in order to satisfy the amount owed.

Bankruptcy can provide relief from collection on a judgment, whether wage garnishment or bank account levy, in several ways. First and most immediately, the filing of a bankruptcy petition and schedules with the Bankruptcy Court invokes an automatic stay protection against continued collection. This means that as of the moment the bankruptcy petition is filed, no further wages or bank account funds can be legally garnished or levied. Second, it is also often possible to have returned any money that has been garnished or levied from a judgment debtor within 90 days of their filing for Chapter 7 or Chapter 13 bankruptcy relief. Only the actual filing of a bankruptcy proceeding will provide the protection of the automatic stay and ability to have garnished funds returned. The quicker a judgment debtor acts to obtain advice of a bankruptcy attorney, the better the odds are to reverse the detrimental effects of a garnishment or levy or, better yet, to avoid it altogether.

Lynn Wartchow is the founding attorney of Wartchow Law Office and has represented clients in Chapter 7 and Chapter 13 consumer bankruptcy proceedings since 2005.

You’ve Just Been Served with a Lawsuit, Now What?

It’s common for people who have consumer debts such as credit cards and medical bills to be sued and have judgments entered against them prior to filing bankruptcy. The first thing to realize is this is all very normal. In fact, lawsuits are so common that the threat of wage garnishment stemming from a judgment is one of the leading motivations for people to file bankruptcy sooner rather than later.

The second thing to realize if you have been sued is that lawsuits move fast and your money and earnings are at risk. In Minnesota, lawsuits are generally initiated when the plaintiff serves the defendant with a summons and complaint stating the basis for the lawsuit and amount owed. For lawsuits involving the collection of debt such as credit cards, the complaint typically will set forth the outstanding balance owed as well as tack on accrued interest and attorney fees. From the date that a summons and complaint are served, the defendant has 20 days to submit an answer or the plaintiff can quickly ask the court for a default judgment. Once a judgment is entered, the creditor is now a  judgment creditor” and has additional remedies available to collect on the amount owed, including garnishment of wages and levying any bank account that is linked to the “judgment debtor”.

Bankruptcy stops a lawsuit the moment a bankruptcy petition is filed with the court. If
the lawsuit is still pending at the time the bankruptcy is filed, a judgment cannot be entered. However if the lawsuit has already been reduced to a judgment, the judgment can still be discharged by bankruptcy. In some circumstances money that has been garnished from wages or levied from a bank account prior to the bankruptcy can be returned to you. There is a process to remove judgments post-bankruptcy discharge, which is advisable to help restore credit quicker after bankruptcy.

If you have been served with a lawsuit, you may wish to act fast to consult your bankruptcy options within the first couple weeks. While it’s generally best to head off a lawsuit before it gets to the point of judgment, you still have options even after a judgment is entered. A bankruptcy attorney can clearly explain what you can expect as far as the lawsuit, judgment and the return of any garnished or levied funds are concerned. Just remember that the legal process moves quickly and prevention is the best defense.

Lynn Wartchow is the founding attorney of Wartchow Law Office and has represented clients in Chapter 7 and Chapter 13 consumer bankruptcy proceedings since early 2005.