How to Deal with a Frozen Bank Account
- Banks can freeze your accounts for a number of reasons.
- Certain transactions may be limited if your account is frozen.
- Contacting the bank is the first step toward unfreezing your accounts.
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A frozen bank account can result from numerous things, including suspected fraud, unpaid debts, or illegal activity. Learning that your bank account is frozen can be a little unnerving and it could put you in a financial bind if you need access to your money.
There are different reasons why a bank might freeze your account. And it's a good idea to know what to do if your bank account is frozen.
What is a frozen bank account?
When your bank account is frozen, it means that your bank has blocked certain transactions from going through. You should still be able to log in to online or mobile banking and view your accounts. And you may still be able to make deposits as well.
However, you might not be able to do any of the following:
Schedule ACH bill payments
Transfer funds to another account
Withdraw cash at ATMs
Purchase certified checks using your account funds
Close the account
If you have any automated withdrawals set up, those might not go through either. For example, if you pay bills through your bank's online bill pay service, payments to your billers might not process as long as your account is frozen.
A frozen bank account can also be referred to as a locked account. Essentially, the bank "freezes" your ability to use the money in your account. The account can only be unlocked at the bank's discretion.
7 reasons why your bank account might be frozen
Here are seven scenarios that could result in a frozen bank account:
1. Suspicious activity
Your bank might freeze your account temporarily if they see a pattern of unusual or suspicious activity. For example, multiple failed login attempts could be a tip-off that someone other than you is trying to access your accounts. In that case, the bank might freeze your account and contact you to request identity verification.
Depending on your bank's security policies, that contact might come via phone call, email, or text. Don’t give personal information out in response to a phone call or text. It's always best to contact the bank directly to make sure the request is legitimate.
Fraudulent transactions can cost you money, not to mention cause a major headache. If your bank believes that a debit card purchase, withdrawal, ACH transfer, or wire transfer is the result of fraud, they might block your account to prevent any other transactions from going through.
That's actually a good thing, as a frozen bank account can limit your liability for losses. The amount of fraudulent transactions you can be held liable for depends on how quickly you report them to the bank.
3. Unpaid debts
Failing to pay debts could lead to a range of collection actions, including wage garnishments and bank account garnishments (also referred to as an attachment). When you're subject to a bank account garnishment, your bank can freeze your account and turn over assets to your creditors.
The kinds of debts that might result in a bank account garnishment include unpaid federal debts, such as back taxes or student loans, credit card balances, and unpaid child support or alimony. There are some rules that apply, however, before your bank can freeze your accounts for unpaid debt.
Your creditor would first need to seek a judgment against you in civil court. The creditor would then need to take the additional step of requesting a bank account garnishment.
Additionally, certain types of income in your bank accounts may be exempt from garnishments, including:
Social Security, Social Security Disability Insurance, or Supplemental Security Income
Public Assistance benefits
Veterans Administration benefits
Retirement account distributions
Child support and alimony you receive
Unemployment Insurance benefits
Workers Compensation benefits
If you have any of those types of income in your account, you would have to document it to the bank to get those funds released. Also, there are limits. For instance, only two months’ worth of Social Security income is exempt.
4. Illegal activity
Your bank may freeze your account if it suspects that the account is being used for illegal activity. For example, a high volume of wire transfers into and out of your account might make the bank suspect that you're engaging in money laundering. Your account may be frozen until you can prove to the bank that no illegal activity is going on.
Writing numerous bad checks is another reason your bank could freeze your account. Check fraud is a crime; if the bank suspects that you're writing bad checks on purpose, your account may be locked.
If you're involved in a contentious divorce with significant assets at stake, your soon-to-be-former spouse might request a court order to freeze any joint accounts you share. A divorce court might grant such an order if there’s a chance that one spouse may move money out of shared accounts without the other spouse's knowledge.
That rule generally applies to marital property only. Any separate property you have, including bank accounts in your name only, may be exempt from a freeze order. It's a good idea to consult a divorce attorney to find out what laws apply for financial restraining orders in your state.
Inactive accounts may be frozen if they sit dormant for long periods of time. Depending on how long the account goes with no activity, the bank might close it altogether. In that case, any money remaining in the account may be mailed, in the form of a paper check, to your last known address on file.
7. Unpaid overdraft
Your account could be frozen if you're in overdraft and you haven't made a deposit to bring your balance back to $0. In that case, the bank might freeze the account to prevent you from attempting to complete new transactions until a deposit is made.
What are your rights when your bank account is frozen?
If your bank account is frozen, you have the right to know why the account was frozen and what options you have for unfreezing it. If the bank hasn't already specified why your account was frozen, you can contact them to ask for an explanation.
Once you know why your bank account was frozen, you can evaluate your options for unfreezing it. Your choices will ultimately depend on why the account was frozen in the first place.
For example, if a frozen bank account results from suspicious activity, unfreezing it may be as simple as asking the bank to unlock it. When suspected criminal activity on your part is involved, however, regaining access to the account may take more time.
Dealing with creditors who freeze an account
If your bank account is frozen because of unpaid debts, you may have a hard time unfreezing it. Depending on the situation, you might try any of the following to get your account unfrozen:
Asking for a vacated judgment. A vacated judgment can lift (end) a bank account garnishment, but you'll need to petition the court to obtain one. You'll need to have grounds to do so and the court may only grant your request if you can put up a strong defense.
Negotiating a settlement. Debt settlement allows you to pay off debts for less than what's owed. You might propose a settlement to a creditor who's frozen your bank account, but if they already have access to your funds, they might not agree.
Filing for bankruptcy. Filing bankruptcy can temporarily halt debt collection efforts and unfreeze your account. However, you’ll ultimately have to show a judge why you shouldn’t use the money in your account to satisfy your debt.
If you think a creditor or debt collector might sue you over an unpaid debt, it's better to work out a payment agreement well before it goes to court and results in a frozen account. You could offer to pay in installments or make a settlement to avoid the trouble and expense of a lawsuit.
How to unfreeze a bank account
To unfreeze a bank account, you'll first want to contact the bank. The bank should be able to tell you why the account was frozen.
What you do next will depend on the reason for the freeze. If it's an issue with the bank, then you'll need to work it out with the bank. For example, if your account is frozen because of overdrafts, you'll need to make a deposit to get it unstuck.
If it's an issue with a creditor, then you'll need to get in touch with the creditor. The bank should have the creditor information on hand if a bank account garnishment is the result of a court order. From there, you can reach out to the creditor to discuss possible options for unfreezing your account and managing your debt obligations.
In the meantime, you might want to look into opening a new bank account while you work out the issues with your old one.
How Long Can A Bank Account Be Frozen?
Most frozen bank account situations are resolved within a week or two, but there is no limit to how long an account can remain frozen. The bank can leave the freeze in place until the issue is resolved, usually a debt that has to be repaid.
Should I Keep Making Bank Deposits After My Account Is Frozen?
If you deposit money into a frozen bank account, the money you deposit could also be frozen. So don’t deposit more money unless you understand that it could be directed to the creditor who attached the account. Some deposits are safe from being frozen, like social security income up to a limit, but it can be complicated and time consuming to figure out what you can unfreeze and how to do it.
Can bank accounts be frozen without notice?
You must receive a notice if your account is going to be frozen, garnished, or attached. However, by the time you receive the notice, it will likely be too late to prevent it from happening or withdraw funds.