When your credit card is denied and your checks bounce, having a frozen bank account can be a scary and stressful experience.
A creditor freezing your bank account can be incredibly unpleasant, especially if you’re not expecting it. As the account holder, you may not even realize that you owe money to someone or that a creditor has sued you. Understanding what happens, why, and what to do about it can help you in these stressful circumstances.
Why would a creditor freeze your bank account?
Your bank account can be frozen when you are sued, lose the lawsuit, and receive a judgment against you. This could be a lawsuit from a credit card company, a debt collector, or another financial institution.
The following are a few ways a lender can get a judgment against you.
Default judgment
A default judgment is when you did not appear in the case brought against you. This can be in person or in writing, called an answer. If you do not answer the lawsuit, you can get a judgment against you. This means you lost the lawsuit, and the creditor who sued you, also known as a plaintiff, won the lawsuit.
No valid legal defense
Another way is when you answer the suit or appear in court for the matter, and the judge decides you do not have a good case or a valid legal defense to win the lawsuit and decides in favor of the creditor or plaintiff. When this happens, and the creditor wins, they want to collect the money. This is also called post-judgment enforcement.
The creditor’s judgment enforcement options
One the creditor obtains a judgment, they can obtain a court order to enforce that judgment to collect the funds owed to them in a few different ways.
Lien
One option is to put a lien against your real property, such as your home. A lien is a legal right against the property, and it allows the creditor to take possession of the property if you don’t come to an agreement to satisfy the debt.
Wage garnishment
A wage garnishment court order allows the creditor to request that your employer withhold some of your wages and divert them to the creditor to pay off your debt.
Bank account freeze
The most common reason your account is frozen is owing money to someone, such as debt collectors. Creditors or judgment creditors are legally allowed to freeze the account, inform your bank, and demand that the funds in the account be frozen or held for later collection by the creditor. This may also apply to joint accounts or accounts containing money that is not yours, as long as your name and Social Security number appear on the account. You might feel stuck, frustrated, and scared if you believe you did not receive sufficient notice about your frozen account.
Can the bank freeze my account without notice?
Yes, if your bank or credit union receives an order from the court to freeze your bank account, it must do so immediately without notifying you first. Unfortunately, this means you’ll likely find out that your account has been frozen when you use your debit card, withdraw from an ATM, or log in to your online account.
What happens when a creditor freezes your bank account?
If your bank account has been frozen, it means your account cannot be used to withdraw money, write checks, make transfers, or fund your bill pay services.
It is important to note that even if a creditor freezes your account, you may still have limited access. For instance, you might still be able to deposit into your account and check your transactions. Direct deposit payments will still be completed with a frozen bank account, but unfortunately, you won’t have withdrawal access to that money.
As a result, if you have a direct deposit for your paychecks set up with your account and your bank account is frozen, it might be best to stop the deposit immediately. You may not have access to this direct deposit once it enters the bank account if it’s frozen.
What should you do if a creditor freezes your bank account?
The first action you should take is to call your bank. Some of the most common reasons for frozen bank accounts are unpaid debts through creditors, illegal activity, and unpaid debts to the government, including unpaid taxes or child support payments.
Next, find out who froze the account and ask the bank if you can withdraw any of the money that are frozen. Then, you should contact anyone you wrote a check to from that account. Advise them the check might bounce and make arrangements to make the payment for those bills another way to avoid issues with other creditors, late fees, bounced payment fees, or bank fees.
Once you find out who froze your account, you can act accordingly. If you’re unsure what to do, reach out to an attorney who can help you resolve the debt and get the bank account unfrozen.
Can a creditor garnish my wages?
A creditor also has the right to garnish your wages if you owe an unsecured debt. Like with frozen bank accounts, wage garnishments occur when the creditor sues for your debt and wins in court. The creditor will send a notice to your employer to send a portion of your wages to the creditor.
However, limits exist to how much the creditor can garnish. The limits are determined by your “disposable income,” which in this case, is your wages after the deductions for taxes and Social Security. For most consumer debt, the limit is 25 percent of your disposable income or 30 times the federal minimum wage, whichever is less. Because it’s more common than bank account levying, wage garnishment is more regulated. Different states have different laws on wage garnishment.
Know the law
Many state laws, including New York’s, set the garnishment of wages at 10 percent of your gross wages. If you make under a certain amount of money, a creditor may be unable to garnish you as you’re entitled to a certain amount of “exempt income.” In New York, this income is covered under the Exempt Income Protection Act (EIPA), which “exempts the first $1,716 of any bank account from debt collection.”
In addition, no two creditors can garnish you if the first creditor already takes out 10 percent of your gross wages. Creditors can only garnish you if you have W-2 income. The amount can change if you get a bonus from working overtime.
If you feel your wages are being garnished in error, you can challenge the garnishment in court. You will need help from an experienced debt collection attorney. You can also file a dispute if the court judgment includes incorrect information or you don’t believe you owe the debt. However, you will have limited time to make this challenge, so act quickly.
You may also claim exemptions for certain benefits paid to your account. For example, veterans, Social Security, and Supplemental Security Income (SSI) benefits are exempt from wage garnishment. However, these benefits are not protected from bank account levying.
How can Tayne Law Group remove the freeze on my bank account?
The experienced debt relief attorneys at the Tayne Law Group are here for you. We will work with you immediately to resolve a frozen bank account. We can contact the creditor and resolve the debt for you as quickly as possible. Call us for a free consultation at 866-890-7337 or fill out our short contact form, and we’ll get in touch!
