If someone wins a judgment against you in court, they can generally ask the court for permission to levy your bank accounts or seize funds from them. Various federal and state exemptions can sometimes protect you from this, depending on factors such as where you live, whether the money comes from a source like Social Security benefits or whether it's necessary for your basic needs. In California, you can file a legal claim of exemption, but if a court denies it, you can protect your assets by winning an appeal or filing for bankruptcy.
TL;DR (Too Long; Didn't Read)
If your claim of exemption is denied, you can allow the creditor to take your funds, appeal the ruling, or file for bankruptcy.
How a Claim of Exemption Works
In California, even if you owe someone money and they win a judgment against you in court, they can't necessarily seize all the money in your bank account. Certain funds are exempt, including Social Security benefits, unemployment benefits, veterans' benefits and a portion of paid earnings received within a certain time period before the order to levy your account was issued.
If you receive a notice that a creditor is levying your funds, you can file a claim of exemption with your county sheriff within 10 days to potentially stop the levy and get your funds back if they were already taken from your account. You'll also need to file a financial statement if you're claiming the funds are necessary for your basic needs.
If your creditor accepts your argument, you will get to keep the funds or have them returned to you, but if the creditor disagrees with your claim of exemption, you may have to go to court. Then, a judge will decide whether or not your claim is valid or if it is only valid for some of your funds. The judge will then grant or deny your claim.
If your claim is granted, you'll get the funds back or get to hold on to them. Otherwise, the creditor can receive the funds if you do nothing. If you still wish to contest the levy, you can appeal the denial of exemption to a higher court. You can also file for bankruptcy in a federal bankruptcy court, which will automatically stop any collection procedures against you, including the levy. If money was already taken from you and was taken within 90 days, you may be able to file to get it back through the bankruptcy proceeding.
Other Claims of Exemption
Any claim of exemption you file applies only to a specific levy against a specific bank account. If you have multiple bank accounts with exempt funds that someone is attempting to levy, you will have to file a separate claim of exemption for each levy.
If someone is attempting to garnish your wages in California, you may also be able to legally stop that with a separate garnishment exemption form. Known as form WG 006, this form allows you to claim some or all of your paycheck as exempt if you need it to support yourself and your family.
Steven Melendez is an independent journalist with a background in technology and business. He has written for a variety of business publications including Fast Company, the Wall Street Journal, Innovation Leader and Ad Age. He was awarded the Knight Foundation scholarship to Northwestern University's Medill School of Journalism.