A property levy is a legal term that refers to the legal seizure of property in order to satisfy an outstanding debt. A property levy may be used by either a private party to satisfy a debt that they are owed as a creditor or a property levy may be utilized by a governmental entity, such as the Internal Revenue Service (“IRS”).
As far as governmental action concerning a property levy, a property levy is typically a measure of last resort that governments use to collect unpaid taxes. For instance, in the case of property taxes, a levy can be enforced by the government in order to seize the property as payment if the property owner’s taxes remain unpaid. The IRS may levy assets such as wages, bank accounts, real property, vehicles, and other personal property in order to collect unpaid taxes that are overdue.
A property levy may also be issued when a creditor sues a debtor for amounts owed on the debt that was agreed upon between the two parties. When a debtor fails to meet their obligation under an agreement with a creditor, the creditor may obtain a court judgment against the debtor.
Then, with the court judgment, the creditor will have the legal authority to repossess the property from the debtor in order to fulfill the debt amounts that remain due. The right to repossess the debtor’s personal property is typically outlined in the “writ of execution,” which allows the debtor to levy on the debtor’s property for payment.
It is important to note that the exact legal elements necessary for a creditor to obtain a court order on a debt will differ from state to state. In general, a creditor can only levy property through a formal court judgment.
However, the debt agreement between the creditor and the debtor might have been secured or backed by property that was offered as collateral. In that case, the creditor may be able to simply repossess the property under the terms of the security agreement.
A security interest is a term that refers to an interest that is created when a debtor gives a creditor the legal right over a piece of property in the event that the debtor breaches the agreement between the two parties. In general, the property offered in a security interest agreement is referred to as collateral property.
In the case of collateral property, the creditor does not have to obtain a court order to repossess the property. In fact, in some cases, the creditor will already be in possession of the property offered as collateral.
Items that are commonly subject to a property levy may include:
- Motor vehicles, such as a car, boat, motorcycle, or all-terrain vehicle;
- Personal property that holds significant value, such as jewelry, art, or other valuable collective items; and
- Real estate, such as a piece of land that may be owned by the debtor that is not considered their homestead.
- It is important to note that in a mortgage agreement, the house that is subject to the mortgage will often serve as collateral in the loan in the case the debtor fails to timely make their mortgage payments.
- This would likely result in a foreclosure action for the creditor to then levy the property.
How Do Property Levies Work?
Once again, A property levy is a legal seizure of property by a creditor in order to satisfy an outstanding debt. Although the exact process of a property levy will be dependent on the laws of the jurisdiction in which the court judgment is being sought, in general a creditor must take the following steps to levy property:
- First, the creditor must obtain a court order authorizing a levy on the property.
- It is important to note that the property owner will first have to prove that they are owed a debt as a result of an agreement executed between themselves and the debtor.
- The creditor will also have to provide the court evidence regarding the original total amount of debt owed, the total amount of the debt that has been paid, and the outstanding amount of debt that remains.
- A writ of execution will be provided to the creditor if they successfully prove their case;
- Next, the local sheriff’s office or other authorized official will serve the debtor with a notice of the levy and court judgment;
- Then, the debtor will have a limited amount of time to pay the outstanding debt before their property is seized to satisfy the court judgment for the outstanding debt;
- Then, if the debtor fails to satisfy the outstanding debt, the sheriff or other authorized official, as directed by the court judgment, may seize the debtor’s property to satisfy the debt; and
- Finally, the seized property is then sold at a public auction, and the proceeds from the sale of the property are used to pay off the outstanding debt and fees listed in the court judgment.
- It is important to note that if the property is levied and sold, the creditor is obligated to return any surplus from the sale to the debtor.
- For example, if the outstanding debt between the debtor and the creditor is $100,000 and the seized property sells for $110,000, then the debtor will be entitled to the $10,000 that was in excess of the amount they owed.
As far as property being seized by a governmental agency, the rules regarding that will be controlled by either the federal or local state laws concerning governmental seizures. The sale of the property seized by federal or local government is overseen by federal, state, or municipal government officials.
Can a Creditor Just Take My Assets?
In short, no, a creditor cannot just take assets without a court order. In general, a private creditor must have a formal court judgment against the debtor in order to take their assets. Then, once a creditor obtains a court judgment, a writ of execution must be signed by the court. Then, with the writ of execution, the writ will instruct a police officer or other appropriate authority to levy the debtor’s property to satisfy the judgment.
How Long Is a Creditor Allowed to Freeze a Financial Account?
As far as a levy that is being enforced against a financial account, a creditor may freeze a bank account. Freezing a bank account is generally the result of the account holder having been sued by a creditor, losing the lawsuit, and the creditor receiving a judgment against the debtor.
In these cases, the creditor can then put a lien against the account holder’s real property, garnish their incoming wages, or freeze their bank account. Creditors with a court judgment may serve the judgment on the bank or financial institution and demand that the funds in the account be frozen or held for later collection by the creditor.
As far as the length of time a creditor can freeze a bank account, that will vary depending on the state laws regarding debt collection. In general, a creditor is generally allowed to freeze the account until the debt is satisfied.
Can I Challenge a Property Levy?
In most cases, it is difficult to challenge a property levy since the property levy is connected to a court judgment. This means that the debtor should have contested the possibility of the property levy at the hearing where the property levy was granted.
However, it may be possible in some cases for a debtor to challenge a property levy or court judgment, especially in cases where the court has made some type of error with regard to the judgment. For example, the judgment could be for an amount that was significantly more than the amount owed on the debt or did not take into consideration payments already rendered by the debtor. If this is the case, that judgment will need to be fixed.
In some instances, it may be possible for the debtor to file an exemption regarding the property being levied upon. This exemption is called a claim exemption. Filing a claim exemption must generally be done within a specified period of time, and most states and local jurisdictions have specific deadlines for a debtor to file such an exemption.
Finally, a debtor may also attempt to negotiate with the creditor. Debtors may negotiate with the creditor even before they file for a judgment or civil lawsuit. Many creditors are willing to work with debtors to create an alternative repayment plan or other options, as collecting a court judgment may be more difficult than reaching an agreement with the debtor.
Do I Need a Lawyer for Help with a Property Levy?
As can be seen, property levies often involve some complex legal issues. As such, if you have had a court judgment obtained by a creditor who is attempting to levy your property, it is in your best interests to consult with an experienced debt lawyer.
An experienced attorney will be aware of the laws in your state, and they will be able to help you determine the best course of legal action. An attorney can also help you ensure that certain property is exempt from being levied. Finally, an attorney can also represent you in court, as needed.
