What's the difference between a garnishment and a levy?

Garnishments and levies are collection tools used 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, as well as when creditors are more likely to use each type of collection technique.

(Read more articles about collection methods that creditors can use against you.)

What Are Levies and Garnishments?

If you fail to pay your debt, your creditor can take steps to force you to do so. Both a levy and a garnishment are collection tools that allow a creditor to take money from you and apply it to your account balance. Here are how they work:

• Levy. A levy allows a creditor to withdraw money from a financial account—most commonly, a checking or savings account. 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 in full). (Learn about the levy process.)
• Garnishment. A garnishment is a collection tool that allows a creditor to instruct your employer to take a portion of your wages from your 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 Wage Garnishment.)

Steps Creditors Must Take Before Garnishing Wages or Levying a Bank Account

Most creditors must first file and win a collection lawsuit in court before they can levy your bank account or garnish your wages. If successful, the court will issue a money judgment to the creditor. The money judgment is proof of the amount owed and serves to protect debtors from having money taken that they don't owe.

Not all creditors need to get a money judgment first, however. Federal agencies, such as the Internal Revenue Service and the Department of Education aren't required first to prove the amount owed. Instead, they can garnish or levy without a judgment after giving you notice of the intent to garnish or levy. That notice must provide you with a reasonable amount of time to either pay the debt in full or respond in writing with why you think you shouldn't have to pay the debt.

Who Uses Garnishments and Levies?

Both government agencies and private creditors can use levies and wage garnishments—and both do just that. Most creditors, however, will attempt to levy your bank accounts first.

There are many reasons why it makes sense for a creditor to drain a bank account before moving on to a wage garnishment. Here are a few:

• Taking money out of your bank account with a levy is quick and easy—especially if the creditor has your banking information.
• If you have enough money in your account to pay off the debt, nothing more will need to be done, and the creditor will have exerted a minimal amount of collection effort.
• Once someone becomes aware that a creditor is attempting to collect a debt, it's unlikely that they'll leave much money in their current bank. It's typical for a debtor to pay bills on a cash basis or move their money to another financial institution altogether.
• Levying an account usually takes less time than instituting a wage garnishment.

By contrast, the amount that a creditor can garnish from wages is usually limited to no more than 25% of the garnishee's disposable income (the amount remaining after subtracting mandatory deductions, such as taxes). So it can take a lot longer for a creditor's debt to be paid using this approach.

(Learn more in If Your Wages Are Garnished: Your Rights.)