Garnishments and levies are legal actions by creditors to seize an asset or stream of income that belongs to you. For the most part, levies apply to your financial accounts and garnishments apply to your wages. Learn the difference between wage garnishments and bank levies and which creditors (private v. federal agencies) are more likely to use each type of action.
(Read more articles about collection methods that creditors can use against you.)
When Can Creditors Garnish Your Wages or Levy Your Bank Accounts?
Most creditors must first get a court order (often in the form of a money judgment) before they can levy your bank account or garnish your wages. However, federal agencies such as the Internal Revenue Service and the Department of Education can garnish or levy without a judgment -- they are are only required to give you notice of the intent to garnish or levy. That notice must provide you a reasonable amount of time to either pay the debt in full or respond in writing why you think you should not be required to pay the debt.
Definitions: Levy and Garnishment
Levies are enforced against financial accounts. Garnishments are enforced against your wages or paycheck.
What Is a Levy?
If a creditor enacts a levy against you, it means the creditor freezes a financial account and then usually takes money in that account to cover your debt. The creditor then takes any future money that you deposit in the account until the creditor removes the levy (usually when the debt is paid off in full).
(Learn about the levy process.)
What Is a Garnishment?
A creditor obtains a garnishment against you in order to force your employer to seize a portion of your wages out of each paycheck. The law then requires your employer send those earnings to the creditor so that the creditor may apply them towards your debt.
(To learn more, see the articles and Q&As in our Wage Garnishment area.)
Who Uses Garnishments and Levies?
Although government agencies and private creditors can use both levies and wage garnishments, usually it's the government that levies your financial accounts and private creditors that garnish your wages. But there are some exceptions.
Levies Usually Come From Government Agencies
Levies are most commonly used by government agencies such as the IRS, Department of Education, or any other revenue collecting federal agency.
Private creditors, such as credit card companies, may sometimes execute a levy if they receive information that money may exist in the account. However, the law requires a private creditor to first obtain a court order before it can attack your bank account. This means you should have ample notice of an impending levy so you can remove the funds from the account beforehand.
Wage Garnishment Usually Comes From Private Creditors
While the law permits a private creditor the power to levy your accounts, private creditors typically favor garnishment over other methods of collection. As mentioned before, the private creditor must obtain a court order before they can legally garnish your wages. Both state and federal law afford you several ways in which you can protect yourself from garnishment.
When federal agencies use garnishment. The IRS and the Department of Education are each notorious for using garnishment of wages to collect for past due taxes and student loans. If one of these agencies places a garnishment on your wages, your options are relatively limited to stop the garnishment.