Q&A: “Help! A creditor froze my bank account!” What to do when this happens to you
Having your bank account frozen can be scary and stressful when your credit card is being denied and your checks are bouncing.
A creditor freezing your bank account can be an incredibly unpleasant situation, especially if you’re not expecting it. You may not even realize that you owe money to someone or that a creditor has sued you. Understanding what happens, why it happens, 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 get a judgment against you. The creditor then is enforcing the judgment to collect the funds owed to them.
Getting a judgment
- 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 then want to collect the money. This is also called post-judgment enforcement.
The creditor’s options
- 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 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: Owing someone money is the most common reason your account will be frozen. The law allows the creditor or judgment creditor to freeze the account, notify your bank, and demand the funds in the account be frozen or held for the creditor to collect at a later date. This can include joint accounts or accounts that have money in it that doesn’t belong to you, as long as your name and Social Security number are listed on the account. You may feel as though you didn’t receive adequate notice that your account would be frozen, leaving you stuck, frustrated, and scared.
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 go to use your debit card, take a withdrawal 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 still may have some limited access. For instance, you might still be able to make deposits into your account and check your transactions. With a frozen bank account, direct deposit payments will still be completed, but you unfortunately won’t have access to use 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. According to NOLO, the most common reasons for frozen bank accounts are because of unpaid debts through creditors, illegal activity, and unpaid debts to the government.
Next, find out who froze the account and ask the bank if you can withdraw any of the monies 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 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 states, including New York, set the garnishment of wages at 10 percent of your gross wages. If you make under a certain amount of money, a creditor may not be able to garnish you. In addition, no two creditors can garnish you if the first creditor is already taking 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 work or worked overtime.
If you feel as though your wages are being garnished in error, you can challenge the garnishment in court. You will need help from an experienced debt help attorney. You can also file a dispute if the 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.
Social Security and veterans’ benefits are exempt from wage garnishment, but not from bank account levying.
How can Tayne Law Group remove the freeze on my bank account?
The experienced debt help 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!