Why do bank accounts get frozen?
The two most common reasons for bank accounts to be frozen are:
- That the bank suspects fraudulent withdrawals on your account, and
- A creditor or creditors have a judgment against you and are levying (seizing money from) your account to satisfy that judgment.
If you’ve made some unusual transactions, or, someone has fraudulently accessed your account, it is only a matter of contacting your bank to find out what happened and straighten things out. However, if you in arrears to a creditor, that is a different story.
Creditors can sue you and, if successful, obtain a legal judgment from a state court awarding them powers to collect what they are owed. Common collection tactics can include wage garnishments and property liens. One particularly powerful tool for enforcing court judgments is the ability to freeze a debtor’s bank accounts.
Banks, credit card companies, hospitals, and other large creditors can easily discover where a person is banking. Once a debtor’s bank is located, and a judgment is in hand, the creditor can demand that the bank freeze the debtor’s accounts. Creditors can place a hold on the account for as much as double the actual judgment.
The initial freeze is more than a scare tactic. It can be a devastating experience in which all or most of your liquid assets are unavailable. That means you can’t write checks or make payments with the money you earn. Worse still, any money that gets deposited in the account after it is frozen will also become frozen.
David M. Offen has spent over 20 years practicing bankruptcy law in Philadelphia. He has helped more than 12,000 clients through the bankruptcy process. Call (215) 625-9600 for a free consultation on how bankruptcy can help improve your financial life.
What happens after accounts get frozen?
Freezing an account does not, by itself, pay the creditor. The writ of execution has frozen the bank account. The bank will report to the creditor the money that is in the account which can be taken by the creditor.
If the balance of the account is less than what is owed, the creditor can continue to levy different accounts until the judgment is satisfied.
This means that absent any intervention, you will lose access to banking services with those accounts until the judgment against you is paid in full. There are ways to get accounts unfrozen and to escape crushing judgments, but such actions must be taken quickly to protect your remaining assets.
What funds can be frozen?
Any personal funds in an account must be frozen once a bank is presented with proper court documents. Wages can be frozen. Savings can be frozen. Money deposited from trusts or court awards can be frozen. Dividends from investments can be frozen.
The only funds which have some automatic protections are government benefits.
Directly deposited social security benefits received in the two months prior to a judgment cannot be frozen or garnished. It’s important to understand that automatic protection only applies to benefits received as direct deposits. Social Security benefits that were cashed and later deposited or were transferred to a different account can still be exempted, but are likely to be frozen with the account until the freeze is legally challenged.
An important nuance to the Social Security exemption is the protection’s scope: the value of Social Security benefits are protected, but not specifically the funds themselves. So if you received direct deposits of $2500 in SS benefits over two months, the first $2500 in the receiving account would be automatically protected from being frozen, regardless of where the actual funds came from.
Funds held in joint accounts can also be frozen. If your money is held in joint accounts with a spouse or close family member, their debt can get your money frozen, and vice versa.
Can you close a frozen bank account?
No. If the funds are frozen because of a levy, those funds are frozen in order to be available for your creditor(s) and you cannot withdraw the funds and close the account.
How can bank accounts be unfrozen?
What can you do if your bank account is frozen? There are some steps you can take and you should act quickly. But don’t panic. Once a bank account is frozen, many people panic, feeling as though their hands are tied. While a frozen account is certainly a serious obstacle, acting swiftly with the aid of a bankruptcy and debt collection defense attorney can get your funds released.
Here’s how to unfreeze a bank account:
1. Filing Bankruptcy
As previously mentioned, money is not automatically withdrawn when your account is frozen for unpaid debts. This can be used to your advantage if you file bankruptcy as soon as you are notified that your creditor intends to levy your account.
Filing bankruptcy automatically halts all collection actions because of the “automatic stay.” If a creditor’s endgame plan was to seize funds from your account, they will not be able to proceed with the account levy once you file your bankruptcy petition. Additionally, the automatic stay will suspend wage garnishments.
A bankruptcy filing will not automatically unfreeze a frozen account. Proof of the filing must be provided to the sheriff who processed the court order to freeze the account. Proof of the filing should also be given to the bank. In addition, it helps to notify the Creditor’s lawyer, if any, that you have filed for bankruptcy.
When the account is unfrozen, the funds will become part of the bankruptcy estate. Be aware that attempting to withdraw the funds for the purposes of hiding them or spending them recklessly could expose yourself to fraud charges and could cause a problem with your bankruptcy.
2. Vacating the Judgment Against You
Many people only have one creditor they must deal with, and this is a good opportunity to attempt to settle that debt. If you can come to an agreement with your creditor to pay a certain amount in a lump sum or over time, the creditor may have the judgment vacated and unfreeze your bank account.
How long does it take to unfreeze a bank account?
It depends upon the reason your account was frozen. In the case of suspected fraud on your account, a phone call to your bank may be all it takes to get the funds released. In the case of creditor levy, it will take some time to either come to an agreement with that creditor, or prepare and file a bankruptcy petition. Once you file bankruptcy and your bank gets notice that you filed, the funds are released.
Is your bank account frozen?
If you are dealing with a frozen account, know that if it was frozen at the request of a creditor, events will proceed rapidly and your money is at risk. Having a lawyer on your side can be the difference between a controlled bankruptcy filing and a personal financial disaster.
Creditors with a court judgment are in a position to leave you penniless. They will try to collect every last dollar they are owed including interest and fees by seizing money from your accounts, and they have no obligation to leave you the resources to pay even basic costs of living. Unfortunately, this is permitted under frozen bank account laws.
If your accounts have been frozen or you have received notice of a court judgment for unpaid debts in the Philadelphia area, you should request a consultation with our bankruptcy attorneys ASAP.
David M. Offen has spent over 20 years practicing bankruptcy law in Philadelphia. His firm has helped more than 12,000 clients through the bankruptcy process. Call (215) 625-9600 to schedule a free consultation and get your questions answered.