What Is a Frozen Bank Account?
A frozen bank account cannot make a transaction. Account freezes are normally the result of a court order. In some cases, the bank may freeze an account itself. Accounts are usually frozen when the account holder has unpaid debts to creditors or the government. Accounts may also be frozen when suspicious activity is detected with the account.
Frozen accounts do not permit any debit transactions. Account-holders cannot withdraw, purchase, or transfer when an account is frozen. Account-holders may continue to deposit and transfer money into a frozen account. A consumer can put money into an account but cannot take money out of it. There is no set amount of time that an account may be frozen. Freezes may be lifted once an account holder satisfies the conditions of the freeze.
A frozen bank account has been suspended from use. The account holder can't:
- Withdraw money
- Deposit money
- Write checks
- Transfer money
- Pay bills
Why Was My Bank Account Frozen?
When a bank account is frozen, it may be due to money owed to another individual or business. Account freezes may also result from outstanding debt to the Internal Revenue Service (IRS). A creditor that has a judgment against an individual can have the individual's account frozen. A creditor may freeze the account for up to twice the owed amount.
A bank account is frozen because a creditor requested the money in the account because of:
- Wage garnishment
- Attachment
- Levy
- Back child support
- Back income taxes
To process an account freeze, banks must first receive a court order. When a receives a judgment, it is legally bound to freeze the account immediately. The bank is not required to inform the account holder of the freeze. The bank may also temporarily freeze the account in certain instances without a judgment from the court.
If your bank has received a notice of collection from your lender, the bank will usually act by “freezing” your funds that aren't exempt. This means that you will not be able to use your account to write checks, and you won't be able to make withdrawals from the account.
If this happens, you may wish to contact your bank to make sure that your exempt funds haven't been frozen as well. This can happen if you have “commingled” (mixed) your exempt and non-exempt monies. When attempting to access exempt funds, you may need to provide proof and documentation, such as pay stubs, receipts, closing statements, statements from government agencies, etc.
Are There Other Reasons My Account May Be Frozen?
Accounts may be frozen for a variety of reasons. Regulators or courts may freeze accounts if the account holder fails to make due payments. Accounts may be frozen for violations of banking rules.
Banks may also freeze accounts if they believe the account activity is suspicious or fraudulent. Banks may freeze accounts in which the transactions were perhaps not taken by the account holder. A sudden or suspicious withdrawal or transfer to another account may indicate the account has been compromised. Accounts may also be frozen if the owner dies and an heir or administrator of the estate has not been named.
If a person is found to be complicit in a crime, their accounts may be frozen, especially for accounts held jointly with spouses and business partners. If a court of law or bank suspects illegal activity, an account may be frozen. Account-holders can request that the bank freeze their account, as well.
How Can I Unfreeze an Account?
Account freezes are not permanent. Certain actions from an account holder are generally required before freezes can be lifted. The account freeze is lifted when payment is made in full to clear an outstanding debt. The creditor may settle the debt for a lower amount in some cases.
In cases of suspicious activity, a bank will generally lift a freeze order after an investigation is complete. If any illegal activity is detected or if the account holder is found to be complicit in fraud through the account, the account may be permanently closed and any remaining funds seized.
Can the Creditor Freeze All the Money in My Account?
It depends on state law. A bank will freeze up to double the amount owed in most states. For example, if the judgment is for $400. A debtor has $1,000, and the bank will freeze $800. However, if the debtor only has $600, the entire bank account is frozen.
Should I Continue to Make Deposits Into My Bank Account?
No. The debtor risks the new funds being frozen by the bank. If the money taken initially is less than the amount of the judgment, most likely, the new funds will be frozen. A debtor should also stop making electronic payments, such as paychecks.
After your bank account is frozen, you can probably still make deposits. If your entire account is frozen, you must stop making direct deposits so that you can have access to your money. If the bank accepts the deposit, it might be frozen along with the other money in the account.
Will I Receive Advance Notice of the Bank Seizure?
No. A debtor will receive notice, but it's usually after the bank account is frozen.
How Can I Prevent a Bank Account Freeze?
Don't ignore debt collectors. If you want to avoid having a creditor freeze your bank account in the first place, you must pay off your debts. You might be able to settle the debt by offering a lump-sum payoff or working out a payment plan. Some creditors, especially government entities, will release the freeze if you set up a plan to repay the debt. Contact your creditor to see if you can negotiate a plan. Have your government assistance funds like Social Security direct deposited. If the government deposited benefits directly into your account within two months of the garnishment, the money that came from Social Security benefits or other government sources can't be frozen. The bank has to ensure that you have access to two months of Social Security benefits. Exceptions exist for garnishments for past-due child support and federal taxes.
If your Social Security deposits are mixed in with other deposits in the same account, or if you've accumulated more than two months of deposits, some funds in the account may not be safe from the freeze.
Can I Get My Money Back?
A debtor has limited options to get the money taken by a creditor. One option is to claim exemptions.
A levy occurs when a creditor freezes an account the debtor owes. The next step is to deduct the money the debtor owes. If the money doesn't cover the debt, a creditor will continue to freeze the account. The account is unfrozen once the debt is paid in full.
Who Can Obtain a Levy?
A levy is generally attached to a bank account by a government agency. This includes agencies like the IRS and Department of Education. A private creditor can obtain a levy, but most courts require a private creditor to obtain a judgment first.
How Can I Fight a Bank Levy?
If you receive a notice, it should set out your rights to object and identify any exemptions that could allow the funds to be released to you. The notice should provide the deadlines to object to or challenge the notice. The notice will also identify the creditor and the case in which it has been issued.
To challenge an attachment, you'll need to file papers with the court telling the judge why the attachment is incorrect.
Is a Creditor Required to Get a Judgment Against the Debtor First?
Yes. A private creditor must sue a debtor in court for the debt. Only if the creditor wins can it obtain a wage garnishment.
Is an Attachment the Same as a Levy or Garnishment?
No. An attachment is a court order to seize property from the debtor to satisfy a debt owed to a creditor. The attachment can include a court order to freeze money in a bank account.
If a lawsuit ends in a judgment for the plaintiff, the defendant owes money. If the defendant doesn't pay the judgment, the plaintiff may take the money.
A plaintiff has options to take the money from the defendant: bank and wage garnishment.
What is a Bank Garnishment?
A bank garnishment occurs when a person's account is seized or frozen. The plaintiff, considered a creditor, attempts to take the money in the defendant's account to cover the debt. The defendant can't withdraw or deposit money or write checks. The creditor also takes direct deposits. The account remains frozen until the creditor has recovered the entire debt in some instances.
Bank garnishments happen if you haven't repaid debts such as medical bills or unpaid taxes. Your bank is not required to notify you of an account garnishment unless the garnishment overdraws your account balance. Depending on your state, you may have rights and protections against having your bank account garnished.
Bank account garnishment means that a collection agency can legally remove money from your account to repay outstanding debt. When debtors ignore requests or cannot pay back what they owe, garnishment is usually the last resort that creditors turn to. Loan companies won't take the legal steps required to garnish a debtor's bank account unless they have mailed notices and made phone calls to settle the debt.
A creditor needs to win a judgment in order to garnish your account. The lender must file a lawsuit, which requires an attorney to deliver notice to both the borrower and the court. To begin withdrawing funds from a debtor's account, the creditor needs an order or writ of garnishment signed by a court official. The IRS is the only creditor that can garnish money from a bank account without a judgment.
Can My Bank Account Be Garnished Without Notice?
Once a court approves a garnishment, the creditor will notify you before contacting your bank and beginning the actual garnishment. However, the bank has no legal obligation to inform you when money is withdrawn due to garnishment. You may receive an automated overdraft notification if the garnished amount is more than what's available from your account balance. The garnishment notification should come from your creditor, not your bank.
After your bank is notified of the garnishment, it must follow the court order before honoring any other transactions you have made. Federal law states that individuals who receive federal benefits will have their last two months' worth of deposits reviewed to determine exempt ones. If you believe your bank account may be garnished, notify your bank of these transactions to ensure the funds are properly exempted and contact a bankruptcy lawyer.
What Happens When My Account is Garnished?
When a creditor garnishes your bank account, money that isn't exempt from the garnishment is frozen and seized. Some banks may charge fees if the creditor attempts to withdraw more money than you have in your account. Even if you have full overdraft protection, the bank may be legally obligated to fulfill the transaction until the garnishment is satisfied. Some banks also charge for separate additional garnishments.
Depending on your state's laws, account garnishment doesn't necessarily mean the loss of your entire balance. State laws on bank garnishment vary. Most states impose a garnishment limit based on a percentage of your disposable income. These laws ensure that debtors will keep enough money to meet their living expenses, but certain types of income are specifically protected against garnishment. Direct deposits from federal benefits, such as Social Security, are protected to some degree in every state, for example.
How is Wage Garnishment Different?
With a wage garnishment, the creditor deducts money from your paycheck. Approximately 25 percent of a person's paycheck can be turned over to the creditor until the debt is satisfied. The deduction is made after all taxes are subtracted from the check.
Is My Overtime Pay Safe From My Creditor?
No. The amount will be deducted from the total sum of the check. Thus, a person may have a portion of overtime pay taken and given to the creditor. A bank garnishment is different. Some money deposited in the bank is off-limits like:
- Retirement
- Pension pay
- Government benefits
- Child support payments
- Money from student loans
- Unemployment insurance claims
Whether overtime would be seized through a bank garnishment depends on your state's laws.
What Can I Do When My Account Is Garnished?
To lift a garnishment, you can try to contact the collection agency to negotiate an alternative payment plan. You may be able to lower interest payments or reduce the amount you owe. You can negotiate partial payments for a certain amount of time. You will have more bargaining power if you reach out to your creditor before a court makes a judgment. It's in your best interest to prevent an account garnishment from occurring in the first place.
You can challenge the judgment in a case where a garnishment is made in error. If the garnishment was improperly executed or poses a serious financial threat to you, you can challenge it. If you decide to challenge the garnishment, seek help from an experienced attorney and act quickly. You may have only up to five business days to challenge your garnishment.
Filing for bankruptcy can stop a garnishment, but bankruptcy should be considered a final resort. When you declare bankruptcy, an injunction goes into place that stops most collectors from calling, sending letters, or filing lawsuits and garnishments. The creditor filing the suit against you may ask the court to lift the injunction after you file for bankruptcy, but only under very special circumstances does this mean you've discharged your debt. You may still owe money after filing for bankruptcy.
Are Government Benefits Protected from Garnishment?
Many types of federal and state benefits are protected from garnishment. Examples of federal and state benefits protected from garnishment include Social Security, Supplemental Security Income, and veteran's benefits. These benefits may be protected, no matter how much you receive. States usually exempt Temporary Assistance for Needy Families and unemployment benefits from garnishment. Child support obligations are not protected from garnishments.
A creditor can get a court order seizing money from any of your bank accounts to repay a judgment, but certain federal benefits deposited in your bank account are protected. The bank is prohibited from turning over any Social Security, SSI, or VA benefits deposited in your account within the last two months. Social Security, SSI, or VA benefits deposited into your account more than two months beforehand are also protected, but the protection is not automatic. You usually must fill out papers and go to court if you need to protect more than the last two months of your benefits.
Can I Get My Money Back From a Bank Account Garnishment?
Yes, it depends on the type of money and state law. For instance, if a creditor freezes a bank account with government payments deposited, the defendant can make sure exempted money isn't frozen too by showing:
- Payment stubs
- Statements from government agencies
- Receipts
Can I Get My Money Back?
A debtor has limited options to get the money taken by a creditor. One option is to claim exemptions.
Should I Talk to a Lawyer about Getting My Money Back?
A collection lawyer will advise you about your options to get your money back. They can provide you with advice for your case and can represent you in court in the event that a lawsuit needs to be filed. It is in your best interests to work closely with an attorney for your claim.
Call our office today at 212-994-7777 or complete the convenient online contact form to set up a consultation.
PRIME LAW FIRM SERVES CLIENTS IN NEW YORK & FLORIDA
