Arkansas Bank Levy Guide: Protecting Accounts and Property

An Arkansas bank levy is a collection action that allows the state to freeze and withdraw funds directly from your bank accounts when you owe tax debt. Once the Department of Finance and Administration serves a levy, your bank must hold the money in your account, which can immediately limit your ability to access deposits, pay bills, or withdraw funds. For many taxpayers, receiving a levy notice brings confusion and concern about how to respond.

To protect yourself, it is essential to understand how the levy process works. Banks must follow strict requirements, and you still have rights during the holding period. Some funds, including federal payments such as Supplemental Security Income, may qualify as exempt income if you provide the correct documentation. Knowing which accounts are affected, how creditors and judgment creditors operate, and the timelines involved helps you make informed decisions.

This guide explains the Arkansas levy process, covering what happens to bank accounts, wages, and personal property. We will also show you how taxpayers can respond, what forms may be required, and how hearings or appeals work. By the end, you will have a structured overview of your options.

What Is an Arkansas Bank Levy?

An Arkansas bank levy is a legal action that allows the state to take money directly from your bank accounts to resolve unpaid tax debt. The Department of Finance and Administration issues a levy after it finalizes an assessment and serves a final notice, giving you a limited time to respond. Once the levy reaches your financial institution, banks must freeze and hold deposits until they transfer funds to the state or you arrange another resolution.

The levy differs from wage garnishment and property liens in scope and immediacy. Garnishment requires your employer to withhold a portion of each paycheck over time, while a lien creates a legal claim against personal property such as vehicles or real estate. A bank levy affects funds already on deposit and can apply to the same account you rely on for wages, deposits, and daily expenses. A bank levy is one of the primary collection tools used by the Department of Finance and Administration.

• Immediate Freeze: Once served, banks must place a hold on your bank accounts on the date specified in the notice.
  
  
• Scope of Accounts: The levy may affect checking, savings, or other accounts from which you can withdraw funds, including joint accounts.
  
  
• Amount Collected: The levy continues until the state collects enough to satisfy the balance owed, including interest and related costs.
  
  
• Source of Authority: The Department of Finance and Administration operates under Arkansas Code Title 26, which provides the framework for levies and related collection actions.
  
  
• Impact on Taxpayers: During the freeze, taxpayers lose access to cash deposits, which affects their ability to pay bills, withdraw money, or use funds for regular expenses.
  
  
• Difference from Most Creditors: While most creditors need a court judgment before levying bank accounts, the Department of Finance and Administration has direct authority once legal requirements are met.

Understanding how a bank levy operates is essential for taxpayers who owe money and wish to protect deposits, wages, and other income. Recognizing the differences between levies, garnishments, and liens helps you prepare and identify the options available to resolve the debt. By knowing when a creditor can serve a levy, how banks must respond, and which forms may follow, you can better manage collection efforts and protect your financial stability.

Legal Authority and the Role of DFA

The Arkansas Department of Finance and Administration (DFA) enforces state tax debt collection under statutory authority provided by the Arkansas Tax Procedure Act. Its Collections Office manages enforcement actions, including bank levies, liens, and wage garnishments. To understand how the DFA exercises its jurisdiction, it is necessary to review the legal framework and the safeguards provided to taxpayers.

Arkansas Tax Procedure Act

• The Arkansas Tax Procedure Act establishes procedures for assessing and collecting unpaid tax debt.
  
  
• It defines the DFA’s authority to issue levies, serve notices, and require banks to restrict deposit access.
  
  
• The statute also provides timelines and due process standards that taxpayers must receive before collection begins.

Certificate of Indebtedness

• A Certificate of Indebtedness functions as a lien once recorded with the circuit clerk in any Arkansas county.
  
  
• This certificate grants the DFA legal standing equal to a court judgment creditor.
  
  
• It also authorizes seizing bank accounts, wages, and personal property to satisfy tax debt.

Collections Office Responsibilities

• The Collections Office reviews taxpayer accounts and prepares required forms before serving a levy.
  
  
• It investigates sources of income, including wages and deposits, to determine viable collection options.
  
  
• The office also ensures banks comply with requirements when freezing accounts and transferring funds.

Federal and State Distinctions

• Federal agencies, including the IRS, rely on their own levy procedures.
  
  
• Arkansas law establishes separate rules for serving levies and scheduling hearings.
  
  
• Taxpayers must understand the differences between state and federal procedures to avoid confusion during enforcement.

Taxpayer Protections

• Every taxpayer can receive a written notice before levy action begins.
  
  
• The DFA must allow sufficient time for taxpayers to respond with payment or appeal.
  
  
• Taxpayers may request a hearing or submit a declaration of hardship to limit the effect of collection.
  
  
• The Arkansas Taxpayer Bill of Rights explains due process protections, including the ability to contest unfair levies.

The DFA enforces collection powers while following procedural requirements that safeguard taxpayer rights. You can clarify when and how levies may occur by understanding how Certificates of Indebtedness, the Arkansas Tax Procedure Act, and the Collections Office interact. This knowledge prepares you to respond effectively and to use available protections when managing unpaid tax debt.

Step-by-Step Levy Process

The Arkansas bank levy process involves a series of structured actions that the Department of Finance and Administration (DFA) and financial institutions must follow. Each step ensures taxpayers receive proper notice, confirms banks act within the law, and directs funds toward outstanding tax debt. Understanding this process helps taxpayers respond in a timely and informed way.

Step 1: Assessment Finalization

The DFA begins the levy process by finalizing an assessment of unpaid tax. This may follow an audit adjustment, an unfiled return, or a determination that reported income does not match state records. Once finalized, the taxpayer is legally responsible for the balance, including accrued fees and interest, until payment.

Step 2: Final Notice and Demand for Payment

After the assessment becomes final, the DFA issues a formal notice stating the amount due, the right to appeal, and the deadline for response. The notice is generally delivered through certified mail to create proof of service. The state may proceed with a levy if the taxpayer does not pay or request a hearing during this period.

Step 3: Preparation of Levy Forms

The DFA prepares levy documents that provide clear instructions to the bank. These forms include:

• The levy form lists the taxpayer’s full name, identifying information, and account details.
  
  
• It includes the balance of tax debt, with accrued fees and costs.
  
  
• The form cites the legal authority that empowers the DFA to serve the levy.

By including these details, the state ensures banks understand their legal obligations and freeze the correct accounts immediately.

Step 4: Service on Financial Institutions

The DFA may serve levy documents in several ways. A collections officer may deliver the notice directly, the DFA may send certified mail to the financial institution’s designated address, or an electronic transmission may occur when banks participate in authorized systems. Each method creates a verifiable record that the bank has received and acknowledged the levy, ensuring compliance with statutory requirements.

Step 5: Bank Action and Account Freeze

Once service occurs, the bank must freeze accounts on the date listed in the levy. This action prevents the taxpayer from withdrawing funds, writing checks, or making electronic payments. The freeze applies to all accounts where the taxpayer has withdrawal authority, including joint accounts. The bank must also calculate the total amount subject to levy and hold the funds until the next stage.

Step 6: Twenty-One-Day Holding Period

The bank holds the frozen funds for twenty-one calendar days. During this period, taxpayers may submit documentation proving that funds qualify as exempt income, such as Supplemental Security Income or other federal payments. 

They may also request a payment arrangement with the Collections Office or file a formal hearing request if they believe the levy was issued incorrectly. The IRS Bank Levy Procedures Manual (IRM 5.11.4) describes similar requirements at the federal level, and Arkansas aligns its process with those federal standards.

Step 7: Transfer of Funds and Notification

The bank transfers the levied funds to the DFA if no relief is granted during the holding period. The DFA applies payments to the oldest tax debt first, including principal, costs, and interest. Taxpayers receive confirmation of the amount collected, which ensures transparency and helps them track how much remains unpaid.

The levy process shows how Arkansas enforces collection while providing defined taxpayer safeguards. By knowing the sequence of steps, from assessment to final transfer, taxpayers can anticipate deadlines, understand their rights, and take practical steps to protect eligible income from seizure.

What Funds Can Be Seized?

When the Arkansas Department of Finance and Administration issues a levy, banks must identify all accounts where the taxpayer has withdrawal rights. The scope of a levy extends to a wide range of deposits, and the freeze can affect personal and joint accounts. Understanding which funds are subject to seizure and which qualify as exempt income helps taxpayers prepare and respond effectively.

Funds Subject to Levy

• Checking and savings accounts are common targets because they hold wages, deposits, and daily income.
  
  
• Certificates of deposit and money market accounts are subject to levy since the taxpayer can access these funds, even if withdrawal requires specific forms.
  
  
• The state may levy the full balance of a joint account when one holder has unrestricted access, and the non-liable account holder must provide documentation to challenge the action.
  
  
• Sole proprietorship business accounts are especially vulnerable since the owner and the business share the same account and legal responsibility for tax debt.

Funds That May Qualify as Exempt Income

• Supplemental Security Income benefits provided to eligible individuals are protected under federal law when identified correctly.
  
  
• Veterans’ benefits, Social Security payments, and certain retirement distributions can remain protected if proven through proper documentation.
  
  
• Court-ordered child support deposits may not be taken if they are clearly labeled and supported by court orders.
  
  
• Recent wage deposits may be shielded if a portion is necessary for immediate living expenses, though taxpayers must act quickly to prove eligibility.

The distinction between funds that can be levied and funds that remain exempt depends on access and documentation. Banks must act immediately once served and rely on taxpayers to identify and verify exempt income. Even federal benefits deposited into the same account as wages may be frozen and transferred without proper evidence.

Taxpayers who understand these rules can safeguard their income with greater accuracy. Individuals improve their chances of protecting funds by keeping exempt deposits separate, gathering a complete list of documents, and responding within the holding period. Understanding which funds may be seized and which remain protected allows taxpayers to plan, prepare documentation, and preserve essential income for daily living costs.

Stopping or Reversing a Levy

Banks freeze affected accounts once the Department of Finance and Administration serves a levy and prepares to transfer funds. Taxpayers can stop, delay, or narrow the seizure during the twenty-one-day holding period. Successful actions depend on fast communication, accurate forms, and proof of exempt income.

Payment in Full

Paying the full assessed balance releases the levy and restores access to deposits. Payment must cover the tax balance, accrued interest, related fees, and any bank charges associated with the levy. Banks lift the freeze once the DFA confirms receipt and posts the payment.

Payment Arrangements

Installment agreements spread payments over time when income supports a feasible plan. Approval often requires a complete list of expenses, recent deposits, and a timely filing history. Missing a scheduled installment can trigger renewed levy action without further notice.

Hardship Relief

If the levy prevents payment of necessary housing, utilities, or medical costs, request hardship consideration. Submit a declaration, pay stubs, bank statements, and documentation showing limits on available income. Include current income data, including paycheck dates, employer details, and monthly payments.

Wrongful Levy Claims

File a claim when cash levied belongs to another person or includes protected federal payments. Examples include a joint account funded only by a non-liable spouse or an account holding Supplemental Security Income. Attach evidence that traces ownership and shows the deposit source and date. A sworn declaration tracing deposits strengthens the claim and expedites review.

Appeals and Hearings

Request a hearing if the assessment contains errors, the balance is paid, or the levy covers exempt income. Procedures and deadlines appear on the Arkansas Tax Appeals Commission site, which explains filing requirements, hearing rights, and decision processes. Timely appeals preserve rights and prevent avoidable transfers during the holding period. Keep copies of mailed documents and email confirmations to prove timely filing.

Communication With Banks and Creditors

Contact the bank quickly to identify deposits that include payroll, federal payments, or other protected amounts. Provide forms labeling exempt income and request the bank segregate those funds during review. Notify any creditor involved in related collection activity to avoid duplicate actions that complicate the account. Ask the bank to note the date of each protected deposit in writing.

Acting within the twenty-one-day timeline creates the best chance to protect eligible income. Clear communication, organized records, and accurate forms support relief requests and settlement proposals. A clear payment or appeal plan helps restore deposit access when a levy arises from old tax debt. Prompt action reduces costs, limits disruption, and moves the case toward resolution.

Protecting Your Accounts and Property

Protecting your accounts and property from an Arkansas bank levy requires careful planning and informed decision-making. Levies place both bank deposits and personal assets at risk, making it essential for taxpayers to take action before and during enforcement. Knowing how to separate exempt income, safeguard joint accounts, and document ownership provides the most vigorous defense.

One of the best ways to reduce levy exposure is to maintain compliance with state filing and payment requirements. Timely tax return submission, consistent payment of assessed balances, and immediate responses to official notices reduce the likelihood of enforcement. Establishing a payment plan in advance demonstrates cooperation and may persuade the Department of Finance and Administration to pause collection.

• Separate exempt deposits: Keep Supplemental Security Income, veterans’ benefits, or other protected federal payments in a dedicated account. Mixing exempt income with wages complicates efforts to claim protection once funds are frozen.
  
  
• Manage joint accounts carefully: Shared accounts may be entirely levied if one holder owes taxes. Opening separate accounts for non-liable spouses or partners provides stronger protection.
  
  
• Safeguard business accounts: Sole proprietors remain personally liable, while corporations and limited liability companies create a separation that may shield business funds. Proper documentation of ownership is critical.
  
  
• Document personal property ownership: Maintain records showing essential use of vehicles, tools, or equipment. This evidence may prevent seizures or support hardship claims if property is targeted.
  
  
• Respond quickly to notices: Acting during the levy’s holding period provides opportunities to negotiate, prove exemptions, or request hardship consideration.

Maintaining accurate records and responding promptly are essential to protecting accounts and property. Taxpayers who separate income sources, document ownership, and take advantage of available remedies stand a better chance of preserving critical funds. By approaching levies with preparation and clarity, individuals can limit disruption, demonstrate good faith, and strengthen their position during negotiations with the state.

Consequences of Ignoring a Levy

When taxpayers ignore a bank levy from the Arkansas Department of Finance and Administration, the impact extends beyond frozen deposits. Levies can create long-term financial challenges, including property seizures, wage garnishments, and escalating costs. The table below outlines the significant consequences, the risks involved, and the potential outcomes of inaction.

1. Bank Accounts

• What happens if ignored: Frozen funds are transferred to the state after the holding period ends.
• Risks involved: Loss of access to income, inability to pay bills, or withdraw cash.
• Likely outcome: Funds are applied to the tax debt, leaving accounts drained.

2. Wages

• What happens if ignored: Employers may receive garnishment orders.
• Risks involved: Reduced paychecks limit the ability to cover living costs and regular expenses.
• Likely outcome: Ongoing wage garnishment until the debt is satisfied.

3. Personal Property

• What happens if ignored: Vehicles, equipment, or real estate may be targeted.
• Risks involved: Loss of essential items needed for transportation, work, or housing.
• Likely outcome: Property is seized to satisfy outstanding balances.

4. Business Operations

• What happens if ignored: Business bank accounts or receivables may be levied.
• Risks involved: Disruption of operations, inability to meet payroll, and strained supplier relations.
• Likely outcome: Instability or even closure if liabilities remain unpaid.

5. Credit Profile

• What happens if ignored: Certificates of Indebtedness may be filed as liens.
• Risks involved: Liens damage financial standing and reduce access to credit.
• Likely outcome: Long-term harm to borrowing capacity and business relationships.

6. Costs and Interest

• What happens if ignored: Court fees and statutory interest continue to accrue.
• Risks involved: Debt balance grows with added fees, costs, and interest.
• Likely outcome: Larger financial burden, making resolution harder.

7. Legal Exposure

• What happens if ignored: Continued noncompliance may trigger enforcement actions.
• Risks involved: Risk of court hearings, license suspension, or referrals for aggressive collection.
• Likely outcome: Stronger legal action that increases pressure to resolve the debt.

Ignoring a levy allows the state to expand collection efforts, reaching wages, business income, and personal property while increasing the total amount owed. Taxpayers who address levies quickly, either through payment, negotiation, or appeals, preserve more options for protecting their income and property. By responding early, individuals reduce costs, limit disruption, and regain financial stability.

Frequently Asked Questions

Can the state freeze my bank account without warning?

The Department of Finance and Administration cannot freeze a bank account without completing formal steps. Before enforcement begins, taxpayers receive a notice of assessment and a demand for payment. The state may serve a levy directly on the bank if the balance remains unpaid. Once served, the account is frozen immediately, and deposits become unavailable. Responding quickly can protect exempt income and keep essential funds accessible.

How does tax debt lead to a bank levy?

The state may escalate to stronger collection measures when tax debt remains unpaid after assessment and demand. A levy is one such tool that allows direct withdrawal from a bank account. The DFA issues a Notice of Levy form, which orders the financial institution to freeze funds. If the taxpayer does not respond, the bank must transfer the amount necessary to satisfy the debt.

What types of funds are considered exempt money?

Certain deposits qualify as exempt money under state and federal law. Examples include Supplemental Security Income, veterans’ benefits, and some retirement payments. To protect these funds, taxpayers must provide documentation that traces the source of the deposit. Maintaining exempt deposits in a separate bank account reduces confusion and protects eligible income. When correctly identified, the funds cannot be used to collect tax debt or other creditor claims.

Can personal property be taken to satisfy unpaid taxes?

Personal property may be subject to seizure when tax debt is unpaid. Once a Certificate of Indebtedness is filed, vehicles, equipment, or other valuable items can be targeted. Sometimes, the sheriff may be called to enforce a writ of execution. Property taken is typically sold to collect outstanding balances. Demonstrating essential use or filing hardship claims may prevent the seizure of necessary assets.

How much of my wages can be taken under bank levies?

Wages deposited into a bank account can be entirely levied once available, unlike wage garnishments that take a portion of each paycheck. The full amount may be frozen unless the deposit qualifies as exempt money. A debt collector representing the state may also pursue future wage garnishments if the levy does not cover the full balance. Taxpayers can request hearings or payment plans to protect their income.

What fees should I expect when a bank levy is served?

Banks often charge a processing fee when handling levy paperwork, even though the state does not authorize them to deduct from frozen funds. The payment must be collected separately from the taxpayer’s available balance. In addition, unpaid tax debt accumulates interest and collection costs until satisfied. Keeping records of each fee and form submitted helps taxpayers understand the total amount owed during the process.

Can I win against a wrongful levy?

Taxpayers can win a challenge if they prove the levy targeted funds that do not belong to them. A typical example involves a joint bank account funded entirely by a non-liable spouse. Filing a wrongful levy form with supporting documents, such as deposit records, strengthens the claim. If the evidence confirms the funds are exempt money or belong to another party, the levy must be lifted.