A lien prevents you from selling property before you pay off a debt you owe. A levy, on the other hand, gives your creditor the right to actually take certain property from you, such as a CD account. If you don't pay your bills, your creditor could pursue both actions against you. However, liens and levies can only be granted on court approval. Before the process even begins, you must generally be severely delinquent on an account.
The first step for a creditor seeking to get a lien or a levy is to file a lawsuit in court. Since lawsuits are expensive, a creditor will generally try to persuade you to make payment before it files suit, perhaps even to the point of agreeing to let you pay less than you owe. If a creditor ends up filing a lawsuit against you for non-payment, it will generally win, as long as the debt is valid. After winning a lawsuit, the court grants the creditor a judgment, which is essentially legal permission to garnish your wages, put a lien against your assets or levy your bank accounts. At this point, your CD account may be in jeopardy.
If you have any liquid assets at the time you lose a lawsuit, your creditor will most likely seize them. When a court issues a writ of execution after granting a judgment, your local sheriff or marshal will take assets right out of your bank account to pay off your debts. This power extends to CD accounts and other investment assets in addition to the free cash in your bank accounts. If your liquid assets are not enough to satisfy the judgment, your creditor may garnish your wages as well.
Even if you lose a judgment, you may be able to protect some or all of your CD account. Each state allows debtors to protect certain property from seizure through the use of exemptions. Exemptions are designed to allow debtors to keep at least some property for rebuilding after having debt problems. If you can prove to the court that your CD account was funded with exempt assets, you can avoid liquidating it to pay off the levy. Exempt assets vary by state but typically include a minimum level of cash and earnings along with Social Security payments. IRAs and other retirement accounts are also generally exempt from creditors, so if your CD account is in an IRA you may avoid seizure.
Other Collection Options
If your liquid assets are not enough to satisfy the judgment, your creditor may pursue other avenues to collect. In most states, creditors can garnish up to 25 percent of your wages, in addition to putting a lien against any real property you own. Some states allow courts to order you to make periodic debt payments. In the event you miss any payments, the court could find you in contempt and issue fines or even an arrest warrant against you.
- Bankrate.com: When Creditors Attack, Is A Lien Legal?
- Federal Trade Commission: Facts For Consumers
- Legal Services of Northern Virginia: How to File A Garnishment Exemption Claim Regarding Wages or Money in A Bank Account
- Nolo.com: Property Levies
- Bankruptcy in Brief: Lawsuits
- Nolo.com: How Creditors Enforce Judgments
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