Levy Meaning
A levy is a lawful process where a debtor’s property is seized when the debtor cannot pay for the outstanding debts. It differs from liens as the lien is only a claim against a property to obtain the payment, whereas a levy is an actual takeover of the property to fulfill the debt.
Explanation
A levy is a legal process performed by a bank or taxing authority. It is slightly different from the lien as it is only a claim against a property to get the payment, whereas, in the levy, there is an actual takeoverTakeoverA takeover is a transaction where the bidder company acquires the target company with or without the management’s mutual agreement. Typically, a larger company expresses an interest to acquire a smaller company. Takeovers are frequent events in the current competitive business world disguised as friendly mergers.read more of the property to fulfill the outstanding debt. In this process, a bank or taxing authority is granted the right to seize the debtor’s property, which can be both tangible and intangible. Tangible assets may include cash, house, car, etc., while future wages come in intangibleIntangibleIntangible Assets are the identifiable assets which do not have a physical existence, i.e., you can’t touch them, like goodwill, patents, copyrights, & franchise etc. They are considered as long-term or long-living assets as the Company utilizes them for over a year. read more.
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How does a Levy Works?
It works as follows –
Example
A levy is done by the bank or taxation authority such as the Internal Revenue Service (IRS). They might seize the property of the debtor to fulfill the debt. For example, Suppose Mr. X took $10,000 from Mr. Y, but even after the due date, Mr. X cannot return the debt amount. When Mr. Y gave up on it, he filed a complaint to the IRS with some legal proof. After checking the proof provided by Mr. Y, the IRS took necessary legal actions against Mr. X and seized his property to satisfy the debt. The amount of $10,000 is returned to Mr. Y by the process of the levy.
How to Stop a Levy?
- Payment of Debts: If the debtor makes the debt payment before the property is seized, it can be stopped. However, it is not possible when the debtor is not in a financial condition to pay.Agreement of Payment with a Creditor: When the debtor makes the creditor negotiate an agreement of payment, the levy can be stopped.When it is declared that the Creditor made a Mistake: When a mistake is found on the creditor’s side, it can be stopped.If the Statute of Limitations Expired: A statute of limitations means the creditor has to collect all the debts before the expiration of the statute of limitations, and if such a period is over, then the levy will be stopped.When the Funds in the Account of the Debtor are declared Protected: There may be some funds in the debtor’s account which can’t be used for levy, such as child support funds, social security funds, etc. Such types of funds are safeguarded against levies.
Requirements of Levy
- The IRS examines the tax; the payable tax bill is sent to the debtor as demand for the debt payment.If the debtor pays the tax bill, no further action is taken against the debtor; however, if the debtor does not pay, which may be due to some financial problem, then implications will follow.The IRS will send the debtor a notice about the purpose of the levy, usually 30 days before its process. The notice can be sent through the mail or delivered to the debtor’s house.The IRS then sends the debtor a warning about the involvement of the third party, if any. The IRS communicates with the third parties to collect the debtor’s tax liability.
When will the IRS issue a Levy?
When the debtor cannot pay the debt even after being notified for any reason, it is final. The only option left for the IRS to satisfy the debt is then the IRS will send a notice of levy to the debtor 30 days before it and after fulfillment of the four main requirements. Then the IRS may levy the debtor’s property, which can be done by levying the intangible property such as wages, dividendsDividendsDividends refer to the portion of business earnings paid to the shareholders as gratitude for investing in the company’s equity.read more, retirement accounts, accounts receivablesAccounts ReceivablesAccounts receivables is the money owed to a business by clients for which the business has given services or delivered a product but has not yet collected payment. They are categorized as current assets on the balance sheet as the payments expected within a year. read more, life insurance, etc., as well as tangible property such as a car or house of the debtor.
Recommended Articles
This has been a guide to Levy & its Meaning. Here we discuss how it works, examples, requirements, and issuance. You can learn more about it from the following articles –
- Taxation PrinciplesWindfall TaxExempt IncomeDebt Settlement
