As some Massachusetts residents have learned, there are some things that are best not ignored such as collection notices from creditors or notices of bank levy. In fact, it can result in debtors’ bank accounts being emptied completely.
A levy is a tool commonly used by the IRS to collect delinquent taxes. When repeated efforts to secure payment from the debtor have failed, the IRS frequently serves the bank with official notification that a levy is about to be imposed on the related account. Upon receipt of this notification, the bank is required to place a hold on the account, and the funds are then frozen and cannot be withdrawn by anyone except the entity filing the levy.
The bank is required to notify the account holder that the levy has been placed on the account. This allows the account holder a period of time to come up with the funds elsewhere to pay the debt. When the time period has elapsed, if the debt has not been paid, then the entity may submit an order to pay to the bank, and the funds may be subsequently withdrawn from the account and sent to the levying entity.
If the funds are insufficient, the bank may be asked to deplete the account. This may be alarming for account holders who are authorized signers on deposit accounts where the funds are owned by parents. Parents’ accounts may be frozen, but they can file a claim of exemption and have funds released.
To avoid this problem altogether, it is important to pay attention to one’s mail. Some junk mail is cleverly disguised to appear as official notices, which may cause people to throw away important mail. A tax lawyer may be able to assist someone struggling with a bank levy by negotiating collection alternatives or assisting in proving hardship.
Source: Fox Business, “Can Creditors Drain Your Parents”, Steve Bucci, May 30, 2013