This legal action allows funds to be withdrawn from the bank or credit union account of a person who owes the state taxes, or is in debt to another public agency.
A financial institution must
freeze the debtor’s funds on the day it receives a Notice of Levy from the Minnesota Department of Revenue and deliver those funds to the department after 10 days.
The financial institutions must also complete and submit a Levy Questionnaire within 10 days after receipt. Also referred to as a disclosure, the Levy Questionnaire identifies:
- The type of bank accounts and the amount of funds in each account.
- Any debtor property the financial institution has in its possession.
- Debtor setoffs and adverse interest.
- The name and phone number of the person completing the questionnaire.
Levy Setoffs
A setoff occurs when a financial institution uses funds in a debtor’s account to pay off outstanding loans owed. Sometimes, a financial institution will claim its “right of setoff” to defeat the levy. This could include funds that are held as collateral for a loan.
The department’s levy has priority over any unexercised right of setoff. In order for the financial institution to assert its right to a setoff, it must submit proof that the setoff was done before the levy was served. View the statute (
Minnesota Statutes, section 270C.67).
Adverse Interests
These are claims by creditors against a debtor’s earning that may reduce the amount that the department’s levy can take. A
third party may have a right to the debtor’s assets, and the institution must provide details of their interest or claim and which assets are included.
Exemption Claim
There are some
exemptions from bank levies listed in the Minnesota Statute (
M.S. 550.37). The levy notice sent by the department allows for the return of an Exemption Claim Form with supporting documentation. The form includes the most common types of bank levy exemptions, but not all.
Providing Proof
An exemption claim must include proof that an exemption is warranted. An included bank statement should show the levied amount and the source of all deposits that add up to that amount. If wages are the source of the levy, include pay stub copies to make a clear link between wages and deposits.
Time Limits for Exempt Funds
There is no time limit on claiming exemptions. When considering a bank levy, the department only looks at funds already deposited when the levy notice is sent to the bank or credit union.
Some funds are exempt from the levy for 20 or 60 days after deposit. Generally, 75 percent of wages are exempt for 20 days after deposit. That time limit extends to 60 days if the debtor was
incarcerated or received financial or another kind of assistance during the previous six months.
Levy Reduction or Release
If there are exempt funds frozen by the levy, the department must issue a levy reduction or release to the bank. A Reduction of Levy Notice is issued to the financial institution primarily for two reasons:
- It was determined that part of the funds affected by the levy is exempt and the department is not permitted to take more than a specified amount.
- After the levy was sent, the balance of the debt was reduced. This may occur when a secured payment is received or when an adjustment is done to reduce the debt amount.
If levy notices were issued to more than one bank and it is discovered that one is holding funds, the levy at the other institution may need to be released or reduced to avoid an overpayment. The department does not immediately reduce a levy when an
unsecured payment is applied to the debt.
