Dear Debt Adviser,
I have a recent bank levy (non-IRS) against me from an old debt. I was wondering a few things: Will filing for bankruptcy cease the levy and quash the debt? If not, what will? Also, can they take my state or federal tax refund?
— Nic

Dear Nic,
Perhaps there is something in the water or maybe the swine flu has mutated into a “way-past-due” flu, but I am getting more mail on seriously defaulted accounts than usual. In a recent column, I chided a young man who let a bill go unpaid to the point of being charged off without taking action. Having a bank account levied usually takes even longer in the collection process. So let’s start with a basic question: Were you aware of this debt and just ignored it? If the levy came as a total surprise to you and you had never been contacted about the debt, then you might want to hire an attorney to look into the matter. The attorney would help you determine if the debt is indeed yours and owed by you and if the judgment used to levy your account was acquired legally.

If the levy on your account was the result of a collection process, as implied by your letter, then you need to know what to do from this point forward. The funds formerly in your bank account now belong to the owner of the judgment obtained to levy your account. If you owe more than was taken from your account, the creditor can continue to levy this or any other accounts the company can find until it receives the entire amount due. You do have the option of ceasing to deposit funds into the account. But without a functioning bank account, you will need to determine how you will pay your monthly bills and where to safely stash your cash. And, you still will owe the balance of the debt.

You asked about filing for bankruptcy. It may help you get the money taken with the recent levy but only if you file quickly and can prove that the funds in your account should be exempt. Contact a bankruptcy attorney and he or she will let you know if filing is in your best interest regarding this debt.

The best way to “quash” a debt is to come to terms with the collector on how you will pay it. Somehow, I don’t believe that’s the answer you were hoping to hear. However, if this is indeed an oldie-but-goodie debt, I suggest that you check the statute of limitations for your state to see if it has expired, rendering the debt unenforceable. Every state has its own length of time when a creditor can enforce a debt in court. Some are as few as two years; others much longer. Check the statute in your state and if the debt has expired, you may have a case to have the suit and judgment overturned. You can do the research on your state’s statute of limitations on the Internet. If it looks promising, consult an attorney. If the statute has not expired and the debt is yours, you may have run out of options to legally dismiss it.

Unless you deposit your tax refund into the bank account that was levied, your creditor will not have access to it. Federal and state treasury departments only allow garnishment of tax refunds by the federal or state government or to satisfy a child support order or a federally guaranteed or owed debt. Old defaulted student loans and IRS debts are examples of debts that may cause you to never see a tax refund until they are satisfied.

Nic, whether you have been ignoring this debt or it has just arrived unheralded like so many birds returning to roost in the spring, your time is up and you need to make a decision on how you plan to deal with it and then do it.

Good luck!

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