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Columns: Bankruptcy Adviser
Justin Harelik Expert: Justin Harelik
Bankruptcy Adviser
How much can creditors withdraw from a bank account?
Bankruptcy Adviser

Bank account levies

Dear Bankruptcy Adviser,
My bank account was just levied. They wiped out the account. Can they take child support money or my husband's money that was in the bank? Can they keep taking direct deposits that come into the account from a job? Should I file bankruptcy? Please help; we have nothing, not even food in the house.
-- Erin

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Dear Erin,
You ask a lot of very important questions. And people in your situation need to act quickly to avoid continuous bank levies.

Yes, the creditor can continue to execute bank account levies until the debt owed is paid in full. Your income and child support money are not protected unless you prove to the court that the money in your account is from child support. Until then, the account is susceptible to continuous creditor levies.

In most states (and possibly in all 50 states plus D.C.), creditors cannot take funds specifically paid for the support of a child. However, you, not the creditor, not the bank and not the court, are responsible to prove that specific funds are exempt (i.e., protected) from creditor claims. You need to file documents with the specific court that issued the judgment.

Most courts have the necessary documents on their Web sites. This paperwork must be completed properly and you will need to demonstrate to the court and to the creditor the funds' exempt status. A hearing will likely follow in which you will be required to prove your claim of exemption.

However, employment wages are not exempt. These funds can continually be either garnished directly from your paycheck or levied directly from your bank account.

It appears that you may be commingling funds from a job with child support funds. Commingling means that you have different sources of income mixed together into one specific account. You will have to prove which funds are from which source.

Most courts take the "first in, first out" method of evaluating commingled funds. This means that the first money deposited into the account is also the first money withdrawn. If the child support funds are deposited on the first of each month and wages are deposited on the second day, then subsequent withdrawals will be considered as withdrawals of the child support funds first and the wages second. Therefore, you will need to trace the deposits and withdrawals to prove which funds are exempt and which are not.

At this point, you need to take a thorough assessment of your financial situation to determine whether bankruptcy is your best option available. For example, if this is the only creditor to whom you owe money then bankruptcy might not be worth it. You might be able to settle with this company or start a payment plan in which the creditor agrees to accept a monthly payment in lieu of continuous, unexpected bank levies.

Right now, you are informally in bankruptcy. Meaning, you owe money that you cannot afford to pay, but you have not formally filed for bankruptcy relief. Because you have not taken the proactive approach to address this issue, you are now reacting to the perpetual status of financial uncertainty. This is an untenable position to be in and one that will not simply go away.

Even if you cannot afford to hire an attorney, you also cannot afford to face one bank levy after another. An attorney will be able to give you a strategy to avoid bank levies and advise you on the best approach to handle this issue. While you do not need an attorney to file for bankruptcy, you might want to seek professional advice.

For those who cannot afford legal representation, many cities have nonprofit organizations that can assist you with the paperwork -- either to file bankruptcy or to properly exempt income from creditor claims. You might qualify for free legal representation.

Bankrate.com's corrections policy-- Posted: May 20, 2008
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