It’s true: once a creditor gets a judgment against you it can take money out or your bank, credit union, or other financial institution account to pay that judgment. This blog post gets into what exactly a judgment creditor can do to levy your accounts, and what you can do to stop it.
HOW CAN A CREDITOR JUST GRAB MONEY OUT OF MY ACCOUNTS?
As my last blog post said, a “judgment give the creditor huge powers over you.” See What Happens When You Don’t Respond to a California Collection Lawsuit? A debt is just an agreement between you and the creditor. Your compliance with that agreement is essentially voluntary. But when a creditor gets a judgment against you that gives that creditor many legal tools to force you to pay the debt. One of the scariest of those powers is for the creditor to take money out of your bank or credit union account—to levy on your account.
Note that you’re warned about this in the Summons that accompanied the Complaint you should have received at the beginning of the creditor’s lawsuit against you that resulted in the judgment. The Summons says that “[i]f you do not file your response on time, you may lose the case by default, and your wages, money, and property may be taken without further warning from the court.” That’s true even if you responded but a judgment was still entered against you. Levying on your accounts is one of the powers that a judgment gives a creditor under California law (and just about every state). Calif. Code of Civil Procedure § 700.140 (levy on a deposit account).
HOW CAN A CREDITOR TAKE MONEY OUT OF MY ACCOUNT IF IT DOESN’T KNOW ABOUT IT?
The good news is that it can’t. The creditor needs to know the financial institution of your account to be able to levy upon it.
To be clear, the California courts do not collect money for creditors. After getting a judgment the creditor has to provide the court with the paperwork with the correct information. Then the court reviews and signs such documents to enforce the judgment—such as an order to levy on your account.
The bad news is that a creditor has many ways to find out your bank account information. Many creditors already have that information from your initial application for credit, credit inquiries on you, your subsequent payments, or other information you’d provided, knowingly or not. Beyond this, creditors can use an asset search, skip tracing, or other investigative means to find your information. As just one example, a company called Docusearch advertises on its website that it: Locates all current bank accounts associated with your subject, Returns name and address of bank, current balance and account type.
Also, creditors know that most people have their account(s) at one of the major banks. So your judgment creditor may just send a Notice of Levy to a number of those major banks, giving it a good chance of hitting your bank.
In addition, since 2015 California law has required all financial institutions with more than nine branches to provide a single address—a “central location”—for service of process, including for account levies. Calif. Code of Civil Procedure § 684.115. So serving documents to any financial institution at its “central location . . . shall be effective against all deposit accounts” at that financial institution. § 684.115(c).
So unfortunately, most likely your account(s) are vulnerable to levy as soon as a creditor gets a judgment against you.
SO HOW DOES THIS WORK? WHAT’S THE PROCEDURE FOR A CREDITOR LEVYING ON MY ACCOUNT?
The creditor prepares and files a Writ of Execution with the court that granted the judgment. This document includes information about the county where the bank account is to be levied. After the clerk of the court issues the Writ of Execution it goes to the sheriff of the county where your bank is located and usually to a process server. The details are different in different counties, but usually the process server serves a copy of the Writ of Execution on the bank, along with a Notice of Levy. Copies are sent to you as well so that you know about the levy.
As soon as your bank gets this paperwork, it must freeze all money in all your accounts, up to the full amount of the judgment. You won’t be able to make any withdrawal, and no checks or electronic payments on the account will be honored.
CAN I DO ANYTHING ABOUT THIS?
Yes, you have four ways of protecting some or all of the money in your deposit accounts.
The first three are possible short-term solutions, dealing only with the current bank levy. But in the right circumstances they can solve all or part of the immediate problem. The final solution is much broader and potentially a permanent one. It addresses not just the current levy but the whole judgment debt, and indeed all your debts.
WHAT’S THE FIRST SHORT-TERM POSSIBLE SOLUTION?
A rather extraordinary new law went into effect in September, 2020, through which a set amount of money in your accounts is automatically protected from levy. Calif. Code of Civil Procedure § 704.220. This amount, adjusted annually, is $1,826, effective July 1, 2021 through June 30, 2022. Calif. Dept. of Social Services All County Letter 21-55; Updated Levy Exemption Amount, Aldrich & Bonnefin, PLC.
Note that a levy is only effective on the balance in your accounts at the financial institution as of the date it’s served. Calif. Code of Civil Procedure § 700.140(b). So as long as the amount you have in your accounts there on that date is no more than $1,826, all of your funds are protected.
BUT WHAT IF I HAVE MORE THAN $1,826 IN MY ACCOUNTS?
The second potential short-term solution involves the set of usual exemptions that were in effect before the above new law went into effect. That new law made clear that this $1,826 of protection “does not preclude or reduce a judgment debtor’s right to any other exemption provided by state or federal law.” Calif. Code of Civil Procedure § 704.220(b).
This is potentially huge. Before the new law went into effect judgment debtors were able to claim exemptions and often able some or their entire bank account funds as a result. Now those usual exemption amounts are in addition to the above $1,826.
HOW DO YOU ALSO CLAIM THE USUAL EXEMPTIONS?
Unlike the automatic $1,826 exemption, you have to act fast to assert your right to other exemptions. You have 15 days after you were served with the Notice of Levy to complete a Claim of Exemption and get it to the sheriff or process server who served you with the levy paperwork. You have 20 days if you were served by mail. Calif. Code of Civil Procedure § 703.520.
If the creditor does not object to your exemption claim, you win. If the creditor objects the matter is decided by the court. See my earlier blog post (written well before the above law change), How to Stop a Bank Levy in California , for more details about this procedure for claiming the usual exemptions. Also, here is a list of the California Exemptions from the Enforcement of Judgments and the Current Dollar Amounts of Exemptions (effective Oct. 1, 2021).
BUT WHAT IF THE ABOVE EXEMPTIONS DON’T HELP ENOUGH AND I REALLY NEED THE MONEY?
That gets us to the third potential short-term solution. The new law referred to above had another rather innovative and potentially very helpful provision. It says, simply, that
Money in a judgment debtor’s deposit account that is not otherwise exempt under this chapter is exempt to the extent necessary for the support of the judgment debtor and the spouse and dependents of the judgment debtor.
Calif. Code of Civil Procedure § 704.225. This requires the court to analyze each judgment debtor’s personal financial situation on a case by case basis, potentially allowing you to protect more than would a strict application of the exemption amounts.
Because the standard is very vague—“to the extent necessary for support”—this gives judges tremendous discretion. So only time will tell how practically helpful this will be.
SO WHAT ABOUT THE BROADER, LONG-TERM, MAYBE PERMANENT SOLUTION?
You likely know that bankruptcy—both Chapter 7 “straight bankruptcy” and Chapter 13 “adjustment of debts plans”—addresses all of your debts. It also stops lawsuits and virtually all other collection actions, including levies on your financial accounts. What is less well known is that even after you’re served with a levy on your accounts, and often even after funds have been transferred to the sheriff or the creditor itself, bankruptcy provides some very strong tools for getting the funds back.
Please see the final sections of my earlier blog post, How to Stop a Bank Levy in California, for more on this.
Overall, if you’re being hit with a levy on your financial institution’s accounts, you would almost for sure greatly benefit from talking about your situation with a seasoned debtors’ attorney. Whether for guidance about dealing with the immediate levy or to consider broader solutions, you can likely use some help. I provide a free phone or office consultation up to one hour to review your facts, answer your questions, and provide you with your possible options.
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