A frozen account is a bank or investment account that has had temporary restrictions placed on it, meaning you cannot access the funds in it. You can still deposit money, but all withdrawals are generally not allowed until the freeze is lifted.
Definition and Examples of a Frozen Account
A frozen account is a bank or investment account that has had temporary restrictions placed on it, meaning you cannot access the funds in it. Most often, accounts are frozen because you owe a creditor or the government. In some cases, this may occur if the bank detects suspicious activity on your account.
For example, in New York State, the government can freeze your bank account if you are more than two months behind on child support payments, owe more than $300, and have not made any payments in the past 45 days. To lift the freeze on your account, you must pay the amount owed or submit a claim that proves an exception or error within 15 days.
How Does a Frozen Account Work?
You can still deposit money into a frozen account, but you cannot withdraw money from it until you meet all the requirements to have the freeze lifted.
Account freezes often occur due to your failure to repay a lender, so the lender may file a lawsuit and win a judgment to freeze your account. The lender then presents this judgment to your bank or investment company, and it is legally obligated to freeze your account immediately. This process is also known as a bank levy.
Note: Most creditors need a court judgment to levy your account. However, federal agencies such as the Internal Revenue Service (IRS) and the Department of Education do not need one.
Court judgments may direct the bank to freeze your account for an amount that doubles the amount owed. For example, if you default on a personal loan of $2,000, they might impose a freeze of $4,000 on your account. You only owe $2,000, but this larger freeze acts as a threat to make you act quickly.
7 Reasons Your Account May Be Frozen
Your financial institution can freeze your account for various reasons. Here are seven reasons, but be alert to your account in case it is frozen for another reason.
- You owe creditors: This means they have obtained a judgment allowing them to levy (or seize) your bank account.
- You owe the government: The government has levied your account (without a court judgment) for federal taxes or food stamps or spousal support or federal student loans or other government debts.
- Your debit card or checkbook was lost: The bank temporarily froze your account (with your consent) until you can find it.
- The bank detected fraudulent or illegal activity on your account: This may happen when writing bad checks or depositing or transferring suspicious funds.
- Your account was temporarily frozen by the bank to investigate the situation.
- You were convicted of a crime: The government ordered your accounts frozen to cover damages to your victims.
- You have an investment account on which you did a “free withdrawal”: A free withdrawal means you were buying and selling securities before paying for them. In this case, the institution places a 90-day freeze on your account to comply with Regulation T.
- You passed away and were the sole owner of the account: Your account was temporarily frozen until a beneficiary or executor of the estate steps forward.
Note: Your financial institution is not legally required to notify you that your account is frozen prior to freezing it. You may not know until a check is returned or you incur insufficient funds fees.
Frozen Accounts and Federal Benefits
Under federal law, your bank cannot freeze two months’ worth of government benefits (such as Social Security, veterans’ benefits, supplemental security income, and others) if they were directly deposited into your account.
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Keep in mind that some federal benefits (such as social security) can be frozen and seized if you owe food support, spousal support, federal taxes, or federal student loans.
For example, if you receive $1,250 in social security benefits monthly, your bank is legally required to keep two months’ worth, which is $2,500, in your balance unfrozen ($1,250 × 2 months = $2,500). The key here is that this amount must be directly deposited into a checking account or a prepaid card. If you deposit a paper check or transfer money from another account, it won’t count.
Note: Even if you only have government benefits in your account, they can be frozen by mistake. If that happens, it is your responsibility to correct the issue with your bank and the court.
How to Unfreeze Your Account
Typically, frozen accounts are not permanent. They can be unfrozen when the necessary procedures are met in due time.
For example, if your account is frozen due to a creditor, lender, or government agency, you can unfreeze it by paying off your debts. If there is suspicious activity in your account, you can unfreeze it by clarifying the activity to the bank. However, if you are engaging in fraudulent activity and the bank has evidence of that, they may close your frozen account without prior notice or warning.
If you’re unsure why your account was frozen, contact your financial institution and inquire. If you cannot meet the requirements to unfreeze it, consider getting legal help from a local attorney.
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Sources:
New York State Child Support Online. “Administrative Enforcement Actions.” Accessed Sept. 15, 2021.
New Economy Project. “Frozen Bank Accounts.” Accessed Sept. 15, 2021.
U.S. Securities and Exchange Commission. “Updated Investor Bulletin: Trading in Cash Accounts.” Accessed Sept. 15, 2021.
Consumer Financial Protection Bureau. “Your Benefits Are Protected From Garnishment.” Accessed Sept. 15, 2021.
Source: https://www.thebalancemoney.com/frozen-account-5201445
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