Understanding the Difference Between a Garnishment and a Levy

If you’re struggling to pay your bills, you might receive a notice that a creditor is placing a levy or garnishment on your bank account or wages. A creditor can be a medical provider, the IRS, or anyone who can prove that you owe them money. 

Most creditors must give you written notice before they can take money from your account or paycheck. Still, it’s important to understand the difference between garnishment and a levy and how you can stop creditors from accessing your income and deposits. This page will give you an introduction to garnishments and levies, how an experienced debt-reduction attorney can help you keep your money, and how bankruptcy can temporarily protect your assets.

What Are Levies and Garnishments?

Levies and garnishments are similar in that they allow creditors to collect payments from your accounts or paycheck. In most cases, creditors must first go to court and obtain a judgment against you, proving that you owe them money (the IRS is one exception). The difference between garnishment and a levy is where the creditor can collect the money.

With a garnishment, your employer withholds a portion of your paycheck and pays it to the creditor. With a levy (also called an attachment), the bank freezes your account, and the creditor can withdraw any future deposits.

When considering garnishment vs. levy, both are ways for creditors to obtain the money they are entitled to from a legal judgment. The difference is where they can access the money: from your bank account (levy) or out of your paycheck (garnishment).

What Are the Limits on Levies and Garnishments?

A bank levy doesn’t mean you lose the money in your bank account. It only means it is frozen. The creditor must file a “Motion to Turn Over Funds” with the courts before it can collect from your account. A judgment creditor has 20 years to execute the levy. If you object, file for bankruptcy, or file for an exemption, the levy can be lifted, and you’ll be able to access the money in your account. 

In addition, the law limits the amount a creditor can garnish from your wages. Creditors cannot reach the first $217.50 that you earn each week. Also, under New Jersey law, creditors may only collect up to 10% of your income if you earn 250% or less of the federal poverty level for a household of your size. State law provides more protection than federal law (which allows creditors to take up to 25% of your wages). If a creditor exceeds the collection limit through garnishment and attempts to levy your bank account, you should file a complaint with the court. Finally, you should know that an employer cannot fire you from your job for having a garnishment.

What Types of Income Are Exempt from Levy or Garnishment?

Federal and state law protects certain types of income from creditors. When you receive notice from a creditor of a levy or garnishment, you should receive paperwork to claim exemptions. If you object to the levy and the court grants an exemption, your bank must protect the exempted amounts. Commonly protected funds include two months of:

• Social Security benefits;
• Student financial aid;
• Workers’ compensation disability payments;
• Unemployment benefits;
• Welfare benefits (such as TANF or SNAP);
• Retirement or pension amounts;
• Child support; and
• Alimony.

In addition, up to $1,000 of your personal property is protected from levy. If your account holds exempted funds and income from other sources, creditors may still be able to claim the funds that do not meet the exemption. 

What Is the Effect of Filing for Bankruptcy on Garnishments and Levies?

When you file for bankruptcy, you get immediate relief from an automatic stay. When your attorney notifies creditors that you have filed for Chapter 7 or Chapter 13 bankruptcy, they must stop all collection activities. The creditor must lift bank levies, end garnishments, and stop calls, letters, and emails. If a creditor continues with collection efforts, it could face substantial penalties under the Fair Debt Collection Practices Act (FDCPA). 

When the court grants your bankruptcy petition, federal bankruptcy law exempts some assets from payment to creditors. Typically, the law protects your house, car, and household effects up to a specific value. While bankruptcy sounds like a worst-case scenario, it is common for the law to give consumers a second chance. 

If You Have a Levy or Garnishment, Call Brenner Spiller & Archer

If you have increasing debt and threats of foreclosure, levies, or garnishments, it is common to feel overwhelmed. Fortunately, the experienced attorneys at Brenner Spiller & Archer, are here to help. Our attorneys have been helping resolve bankruptcy issues and personal injury cases for over 35 years. We provide friendly, caring, and affordable legal services to those in need throughout New Jersey. When you contact us for a free consultation, we’ll explain the legal implications of a garnishment or levy and discuss which exemptions and limits may apply to your case.