Levy

• A levy is a seizure and freezing of assets to satisfy a debt. The term is normally used by the government to describe the freezing of assets to satisfy a tax obligation, but the laws in most states permit a private party who holds a money judgment to levy an individual's bank account.
  
  

Garnishment

• A levy is often also called a garnishment. While the terms do not have precisely the same definition, they are often interchangeable in the world of debtor and creditor law. When a creditor freezes your bank account, it is usually called a levy; if the creditor actually removes money from the account, the creditor has garnished funds. Creditors can also levy and garnish your wages.
  
  

Bankruptcy

• A bankruptcy is a court proceeding you file in order to manage your debt. A Chapter 7 bankruptcy is a liquidation, while a Chapter 13 bankruptcy is a repayment arrangement. Both types of bankruptcy are authorized by the Bankruptcy Clause of the United States Constitution and are governed by Title 11 of the United States Code. Federal law trumps state law pursuant to the Supremacy Clause of the Constitution. Because bankruptcy law is federal law, the Bankruptcy Code prevails over state collection law.
  
  

The Automatic Stay

• Section 362 of the Bankruptcy Code provides that when you file a bankruptcy case, all collection activity by any creditor is stayed until the case is over or until further order of the court. The automatic stay applies to levies and garnishments. Once you file your bankruptcy petition, your creditors must immediately stop all collections and release all garnishments and levies. You may even be able to recoup funds that creditors have already taken.
  
  

Exceptions

• The automatic stay applies to all creditors. However, certain debts, such as income tax obligations, child support and alimony, cannot be discharged in bankruptcy. If the state or federal government has levied your bank account for unpaid income taxes, the levy may survive the bankruptcy, depending on when the taxes were assessed. Taxes that were assessed more than three years prior to the bankruptcy filing can be discharged in bankruptcy, but taxes assessed within the past three years are nondischargeable. The automatic stay will prevent the taxing authority from performing further collection activity, but once the case is over, you will still owe any nondischargeable tax debt and your assets can still be levied.