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Dear Bankruptcy Adviser,
Is it legal for a creditor to levy my bank account, take every last penny I have and leave me with nothing in an account that was “charged off” years ago? They never even informed me, yet they claim to have served me with papers. Is there any recourse to this?
— Karen

Dear Karen,
You are learning the hard way that in the world of creditor-debtor relations, you, the debtor, are at great risk. It sounds like this creditor, or subsequent collection agency, executed an all-too-common act called “gutter service.” This means that the person assigned to give you notification of the lawsuit, called a process server, simply took the lawsuit papers and tossed them in the gutter, all the while claiming that you were properly served (notified) with the lawsuit.

Unfortunately, at this point, all your assets are at risk once the creditor has a judgment against you. The most common creditor acts are to levy a bank account or to garnish your wages. A bank levy means that the creditor, with court approval, removes all funds that are in your bank accounts. A wage garnishment means the creditor takes funds directly from your paycheck.

And yes, the creditor can levy your bank account down to the last penny. The creditor can only take up to the amount you owe, of course. If you owed $10,000 and have $5,000 in the bank, then the levy can take everything. This could mean you might not be able to make your rent or mortgage payment, and this type of action has pushed many people into bankruptcy, foreclosure or eviction.

At this point, your options are very limited:

  1. You can file bankruptcy.

    You may be able to recoup some or all of the money if you immediately file for bankruptcy. This option varies from state to state. If you are able to “exempt” those funds that were levied from your bank, then the creditor could be forced to return the money to you. A bankruptcy attorney in your area will be able to tell you whether some, none or all of the funds could be returned after you file bankruptcy papers.

  2. You could contest the lawsuit.

    This could be impossible because the creditor’s judgment could be too old to contest. However, if you were not properly served, you could have the judgment set aside. This can be done without an attorney, but it is a complicated process and will not ensure that the funds will be returned.

  3. You could no longer use your bank account.

    If you cannot file for bankruptcy and the judgment cannot be overturned, then you will be unable to keep funds in your bank. The creditor could continuously levy your bank account until the balance is paid in full. You could be relegated to using cashier’s checks and money orders to pay your bills.

I assume that your financial difficulties were due to legitimate reasons, and I truly empathize that you are in this situation. It is hoped you can fix this without more financial hardship. But at this point, you will be out more money that you don’t have trying to resolve this problem.

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