A levy is a legal tool that allows creditors, like the IRS, to take a property or assets to cover a debt. This could mean taking money from a bank account, garnishing wages, or even seizing personal property. Levies are mostly used to collect unpaid taxes, court-ordered payments, or other outstanding debts.
What is the purpose of a levy?
The purpose is simple: it’s a way for creditors to get paid when someone doesn’t pay. A levy lets them take money directly from a bank account, paycheck, or even assets. Common reasons levies are used include:
- Unpaid Taxes: The IRS may issue a levy if someone hasn’t paid their federal taxes.
- Delinquent Loans: Banks or other lenders can levy an account for unpaid debts.
- Court Judgments: If a person loses a lawsuit and doesn’t pay the amount ordered by the court, the court can issue a levy.
What is the difference between an IRS levy and a bank levy?
Both are levies, but they’re not the same:
- IRS Levy: Issued by the IRS for unpaid taxes. It can affect wages, bank accounts, Social Security benefits, or even physical assets like property. The IRS usually sends several warnings before taking action.
- Bank Levy: Imposed by a creditor or court to collect unpaid debts. This type of levy freezes your bank account and allows the creditor to take money directly. It typically happens after a court judgment.
Is a levy the same as a garnishment?
Not quite. Both involve taking money to cover a debt, but they work differently:
- Levy: It can apply to different assets—bank accounts, wages, or even property. It could seize everything or just a part of it. It’s often used by the IRS or financial institutions and may be a one-time action.
- Garnishment: This usually involves withholding part of your paycheck to pay the creditor. Garnishment typically continues until the debt is fully paid, while a levy might only happen once.
How can you get a levy released?
If someone has a levy on their assets, they can get it removed in a few ways:
- Pay the Debt: The easiest way is to pay off what they owe. Once the debt is cleared, the levy is lifted.
- Negotiate a Payment Plan: The IRS and other creditors may let them set up a payment plan to pay the debt over time.
- Request a Hardship Exemption: If paying the debt would put them in serious financial trouble, they may be able to prove this and get the levy lifted.
- Appeal the Levy: If they think the levy was issued by mistake, they can file an appeal or ask for a hearing.
- Settle with an Offer in Compromise: The IRS offers a program where the person can settle their tax debt for less than they owe, but only if they qualify.
If anyone gets hit with a levy, they don’t wait too long to deal with it. The sooner they act, the better chance they have of avoiding more financial problems or losing assets.
