What's the Difference Between a Garnishment and a Levy?

If you fail to pay your debt, your creditor can take steps to force you to do so. Garnishments and levies are collection tools creditors use to seize an asset or stream of income that belongs to you. For the most part, "levies" take money from your financial accounts, such as bank accounts, while "garnishments" take your wages.

However, creditors can't just take all of your money. Federal laws limit garnishments and state wage garnishment laws might protect even more of your paycheck. And some money in bank accounts is protected.

What Is Wage Garnishment?

A "wage garnishment," sometimes called a "wage attachment," is an order requiring your employer to withhold a certain amount of money from your pay and send it directly to one of your creditors.

What Is a 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 you deposit in the account until the creditor removes the levy, usually when the debt is paid in full.

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 to 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.

Also, 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 get paid using this approach.

How to Protect Your Money From a Garnishment or Levy

Federal and state laws protect some money from garnishment and levies.

Using Exemptions to Protect Your Pay From Garnishments

Under federal law, a judgment creditor can garnish only 25% of your disposable earnings for that week (your take-home pay after mandatory deductions) or the amount by which your disposable earnings for that week exceed 30 times the federal minimum hourly wage, whichever is less. (15 U.S.C. § 1673). So, if your take-home pay is quite low, you might be protected from wage garnishment.

Also, state laws could provide more protection. You might be able to protect some wages with exemptions. You'll have to follow proper procedures to claim the exemption, typically by going to court, and the judge will decide whether it your exemption is valid or not. Exemption laws vary considerably from state to state.

In addition, certain federal and state benefits, like Social Security, Supplemental Security Income (SSI), and Department of Veterans Affairs (VA) benefits, are protected from garnishment. There are some exceptions for child support obligations and debts you owe the federal government.

Money Protected From Levies

Some federal benefits, including Social Security, SSI, and VA benefits that are deposited in your bank account are protected (subject to some exceptions, like child support and debts you owe the federal government).

Under federal law, money from Social Security benefits or benefits from certain other government sources are automatically protected if the government deposited the benefits directly into your account within two months prior to the levy order. Social Security, SSI, and VA benefits that were deposited into the account over two months beforehand are also protected but this protection isn't automatic. You'll have to prove the funds are protected, probably by filling out some paperwork and possibly going to court.

In addition, some states have a law protecting a set amount in a bank account, no matter where the funds originated. For example, Massachusetts law protects $2,500. Other states protect different amounts, usually ranging from a couple hundred dollars to a few thousand dollars. Generally, the protection isn't automatic, so you'll need to take action to protect that money.

Talk to a Lawyer

In most cases, the burden is on you to show that your money is protected and exempt from garnishment or levy. Contact a local debt relief attorney for information specific to your situation and to find out if you can stop a wage garnishment or bank account levy.