Bank Levies – More Effective, Less Expensive

The bank levy is an important judgment collection tool in California.  It “sweeps” the funds in a debtor’s bank or brokerage account.  Historically, to levy a debtor’s account, a creditor was required to serve a Notice of Levy on the specific bank branch at which the debtor’s account was located, and a debtor’s funds remained untouched if a creditor served the wrong bank branch.  As a result, creditors were required to know both: (1) the financial institutions at which the debtor maintained accounts; and (2) the specific branches at which those accounts were maintained.  It is difficult to get this information without conducting a judgment debtor’s examination or obtaining an asset search, which can be expensive and inefficient, and possibly tip off a debtor who could withdraw funds from those accounts before a levy can be served.

Fortunately for creditors, as of January 1, 2013, bank levies are far more effective and less expensive.  A new law, California Assembly Bill 2364, requires most financial institutions to designate a central address for service of Notices of Levy.  Service of a Notice of Levy on a financial institution’s central address, if done correctly, now serves to sweep all of a debtor’s funds at any branch throughout California.

The impact of AB 2364 is significant for many reasons.  To act on a bank levy, a creditor must obtain a writ of execution from the court to be used in each county in which the levy will take place.  Prior to January 1, a creditor was often required to obtain multiple writs of execution for use in multiple counties, utilize multiple process servers, and prepare multiple sets of instructions to the sheriff’s departments in the subject counties.  These extra steps significantly increased the collection expense for creditors.  However, as a result of AB 2364, most of the largest banks have designated central addresses in Los Angeles County.  This allows creditors to levy on several large banks simultaneously by obtaining a single writ of execution (in LA County), utilizing only one process server, and preparing instructions to only one sheriff’s department.

Following the recent economic downturn, many smaller banks no longer exist, meaning debtors are more likely to maintain accounts with at least one of the largest banks (e.g., Bank of America, Chase, Wells Fargo, Citibank, US Bank).  This fact, coupled with central addresses in LA County, allows creditors to “take a shot” by serving a levy on each of the big banks without first having to pay for an asset search or debtor’s examination.  In the past, creditors would typically levy only on accounts they knew to exist.  Now, if specific accounts are unknown, it is relatively inexpensive to immediately levy on several of the big banks, “playing the odds” that the debtor maintains one or more accounts with at least one of those banks.  And the odds are relatively good.  As of 2012, three banks (Bank of America, Wells Fargo, and Chase) collectively held more than 52% of all funds on deposit in California.

A successful judgment collection strategy requires a careful and ongoing weighing of the projected cost and benefit of each collection step.  AB 2364 helps tip the balance in favor of seeking bank levies that creditors previously thought unwise to pursue.