Levy – Definition and Explanation

Cite this article as:"Levy – Definition and Explanation," in The Business Professor, updated January 22, 2020, last accessed August 5, 2020, https://thebusinessprofessor.com/lesson/levy-definition-and-explanation/.

Back To: Legal Disputes: Civil and Criminal Law

Levy Definition

Levy is a government action imposing, assessing, or collecting a fine, tax, sanction, or some other form of monetary punishment against a debtor. Levy generally involves a formal legal procedure whereby a debt is charged or assessed against an individual or property.

Levy is a collection process employed by administrative agencies of the government and by courts.

A Little More on What is Levy

The word levy has been expanded to mean physically seizing or taking possession of the property to satisfy a debt. Generally, only a government authority (such as Federal or State Court, the Federal Internal Revenue Service – IRS, or State Department of Revenue) has the power to levy property.

Levy Through the Court

A credit can bring legal action against a debtor and receive a judgment. The creditor may then petition the court for a writ of execution. This is a court order to the Sheriff to identify non-exempt assets of the debtor and seize them for public sale. This process is simply known as “execution”. Levy, as part of the execution process, is the actual process of carrying out the writ by seizing an individual’s property. The property will be sold at a sheriff’s sale. The proceeds will be given to the creditor to satisfy the outstanding judgment.

If the creditor can identify accounts or assets of the debtor held by a bank, the creditor can request that the court levy those assets. This is known as a “bank levy”. In such a case, the writ of execution is sent directly to the bank. The bank must then follow procedures for holding and surrendering the assets in the levied accounts to the creditor.

Administrative Levy

Levy is also a common debt collection method carried out by administrative agencies of the Federal or State Governments – such as the IRS. The IRS can levy an individual’s property to satisfy a tax debt. This includes physical property, securities, and monetary assets.

Any time the government levies property, it must afford the individual procedural due process rights. Generally, this involves notice of the debt and intent to levy – though there are exceptions if providing notice would thwart the administration of justice. The individual must be afforded an administrative hearing or opportunity to dispute the debt giving rise to the levy. For example, the IRS must generally provide notice of an intent to levy property at least 30 days prior to doing so. The notice must explain the individual’s right to challenge the action.

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