The Difference Between a Levy and a Garnishment

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The words "garnishment" and "levy" are often used interchangeably. But the two are distinctly different, though both perform nearly the same function.

A levy is a hold on an account that freezes deposited monies and cannot be accessed. The account holder cannot withdraw or transfer funds in a levied account. For instance, if a taxpayer owes back taxes, the Internal Revenue Service may apply a levy against her account. Any money deposited into the account—like a paycheck directly deposited—will also be frozen until such time the money due is distributed to the creditor and the levy is withdrawn.

A garnishment is a withholding of monies due to an individual. A garnishment is a percentage of earned, after-tax income and is withdrawn prior to being deposited or received by the wage earner. For instance, if a person owes a debt and has been sued, she may incur a wage garnishment. The creditor-plaintiff presents a judgment against the debtor to her employer and a percentage of her paycheck is withheld each pay period until the judgment is satisfied.

Real-world examples:

Levies are often used by government agencies such as the Internal Revenue Service, the Social Security Administration and other bureaucracies at the federal as well as the state level. These government entities may pay-out benefits to unqualified persons. After attempts to collect the monies, the agency completes an application against the recipient's bank account. Once in place, the levy freezes all assets in the account or deposited into the account until the recipient makes restitution.

In the instance of a garnishment, a credit card company which has received payments directly debited from a cardholder’s checking account or student loan company which is attempting to collect an arrears in payments may seek a garnishment.

In this instance, the credit card company or student loan corporation demonstrates to a court the arrears and applies for a Writ of Garnishment. Once granted, the writ is submitted to the debtor’s banking institution or employer. Per requirements of the writ, the bank or employer withholds money or earnings and diverts it to the credit card or student loan company.

The remedy for a consumer has an account levied or wages garnished is to contact the institution attempting to collect and work out a repayment schedule. If the institution is unwilling to remove the levy or writ, the consumer can complete a garnishment exemption claim form specific to the jurisdiction.

Consumers should always consult an attorney to be apprised of all legal options.