Is There A Difference Between Levies And Garnishments?

Levies and garnishments are collection tools that are used to seize a source of income or an asset from a debtor. These tools are used by creditors. Put simply, levies apply to financial accounts while garnishments apply to wages. Find out about the difference between bank levies and wage garnishments, and when creditors are likely to use each of these collection techniques.

What Are Levies and Garnishments?

If you are unable to pay your debt, the creditor can use collection tools such as a levy and a garnishment to take money from you. Here explains how they work:

  • Levy

A levy enables the creditor to take money directly from your financial account, usually a savings or checking account. If a creditor uses a levy against you, your financial account will be frozen and money will be taken from that account to cover your debt. Any future money you deposit in that account may be taken, as well, until the levy is removed by the creditor. Read more about the levy process.

  • Garnishment

A garnishment allows the creditor to order your employer to hand over a portion of your wages to the creditor for your debt repayment. Read more about wage garnishment.

Steps Creditors Have to Take

Creditors have to file a collection lawsuit first before making use of the collection tools. If they win the lawsuit in court, the court will issue a money judgement, which is the proof of the amount owed. This protects debtors from overpaying money that they do not owe.

However, not all creditors are required to have a money judgment first. Federal Agencies such as the Department of Education and the Internal Revenue Service do not have to prove the amount that is owed. They can levy or garnish without a money judgment after notifying you of the intent to do so. The notice given must be sufficient to provide you with enough time to fully repay the debt, or respond with a reason, to explain why you think that you do not have to pay the debt.

Who Uses Garnishments and Levies?

Levies and wage garnishments can be used by both government agencies and private creditors. Most creditors will try to levy your bank accounts first, if they know the location of the bank. There are a few reasons why:

  • Using a levy to take money out of your bank account is a quick and easy process. This is especially so if your creditor has your bank account information.
  • It requires the least effort if you have enough money in your bank account to repay the debt and nothing else will need to be done.
  • It takes less time to levy an account as compared to instituting a wage garnishment.

The amount that can be garnished from wages is usually limited to 25% of the individual’s disposable income. It can take much more time for the creditor’s debt to be paid using this collection tool.

If you would like more information about collection tools such as levies and garnishments, do not hesitate to contact us today.