A levy is a general term for a legal claim, especially a claim against a particular asset. It is a term commonly used for a variety of debts, especially those concerning property and vital obligations to the government. In some cases, the levy may only affect a tangible asset such as a house. But in other cases a levy can target a bank account -- or, more specifically, the cash that a bank account holds. In many of these cases, the bank is under a legal requirement to obey this levy.
A notice of levy is a document that shows an account holder that a levy has been placed on an asset -- in this case, on a bank account. This means that funds are being taken from the bank account to pay off a key, secured debt that the account holder has not paid properly. This typically begins with freezing the bank account so the account holder cannot move funds around. Next, the bank will remove funds according to the levy order and transfer them to either a court or directly to the entity that requires the funds. This is typically known as a wage levy, because it applies directly to income earned by the borrower.
A notice of levy sometimes occurs when the account holder has a private debt that needs to be repaid. This is common for both credit card debt and mortgage debt. In credit card debt, the credit card company or a debt collection agency will sue for the repayment of very late debts. The court may then give the necessary permissions for a levy against wages held in a bank account. In a mortgage, a bank will often add a clause to a contract that allows the bank to take late mortgage payments from an account held at the same institution, even without an official levy.
A tax levy occurs when the account holder has not paid taxes owed to the IRS, causing the IRS to seek tax repayment through a levy on assets -- specifically, by garnishing wages. These tax levies are very serious and are typically much harder to appeal or remove than a levy that's only for a secured debt. The taxes due to the government take precedence over all types of debt, and it is much more difficult to argue that the levy is unlawful or inappropriate. Because sending a levy notice to the bank and account holder is easy, it is common form of enforced collection.
Jointly Owned Accounts
When a bank account is jointly owned by two people, the levy becomes more complicated. In most cases, the account can be levied for debts or taxes owed by one of the holders even if the other holder has no debts. In this case it is best for the debtless holder to allow the funds to be taken. When the levy is completed, the holder can file a wrongful levy action detailing the causes of the levy and who held the debt. The holder will then be reimbursed for the loss.