A bank account freeze means you can't take or transfer money out of the account. Bank accounts are typically frozen for suspected illegal activity, a creditor seeking payment, or by government request. A frozen account may also be a sign that you've been a victim of identity theft.
Each situation requires specific actions to unfreeze the account. Here's more on why a bank account may be frozenâbut read your bank's deposit agreement to find out your how your bank freeze rules work.
Key Takeaways
- You can still receive deposits into frozen bank accounts, but withdrawals and transfers are not permitted.
- Banks may freeze bank accounts if they suspect illegal activity such as money laundering, terrorist financing, or writing bad checks.
- Creditors can seek judgment against you, which can lead a bank to freeze your account.
- The government can request an account freeze for any unpaid taxes or student loans.
- Check with your bank or an attorney on how to lift the freeze.
What Is a Frozen Account?
It can be a nasty surprise to find out that your checking account is frozen. It's even worse when you find out after trying to use your debit card at the grocery store or while trying to get cash for a night out with friends.
When a bank freezes your account, it means there may be something wrong with your account or that someone has a judgment against you to collect on an unpaid debt.
An account freeze essentially means the bank suspends you from conducting certain transactions. You can still access your account, but there are limits to what you can do.
You can still monitor your account and can receive deposits including your paycheck. But whatever is deposited during this time stays put. The freeze stops any withdrawals or transfers from going through. This includes any preauthorized payments you may have scheduled to go through your checking account. So if you have a rent or mortgage payment, a car loan payment, or a monthly charge for your gym membership, there's a good chance they won't go through.
Preauthorized payments scheduled from your account will bounce when your account is frozen.
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Suspicious or Illegal Activity
Banks have the authority and discretion to freeze accounts if they suspect account holders are conducting illegal activities. Banking regulations became stricter after events like the September 11 terrorist attacks, as regulators sought to crack down on criminal enterprises that use financial institutions to conduct their business.
Banks routinely monitor and report accounts for suspicious activity like money laundering, where large sums of money generated from criminal activity are deposited into bank accounts and moved around to make them seem as though they are from a legitimate source. Suspected terrorist financing or tax evasion are other reasons banks often freeze accounts.
Daily deposits of $10,000 can lead to your bank filing a suspicious activity report (SAR). So if you win big at the casino or get a big payment for another legitimate reason, alert the bank when depositing your windfall.
Your bank may also freeze your account if you write and cash bad checks. You may think it's okay to try to cash a check you've written even if you don't have enough money in your account. After all, the check may take a few days to clear, right? But the bank doesn't think so. Knowingly writing checks on an account that doesn't have enough moneyâand doing so regularlyâis considered fraud.
If your bank flags suspicious behavior you weren't responsible for, you may be a victim of identity theft. Some of the best credit monitoring services also offer benefits like identity theft insurance and useful tools to protect your information better.
Banks can accidentally freeze accounts through fraud detection errors. In July 2022, the Consumer Financial Protection Bureau (CFPB) fined Bank of America $100 million for incorrectly freezing accounts with a faulty fraud detection program.
Unpaid Debts to Creditors
If you have unpaid debts, your creditors can get the bank to freeze your account to satisfy your obligations. But they must first get approval from the courts before taking this action.
Creditors must first notify you of filing a lawsuit against you, then of getting a judgment against you. This is then sent to the bank and is kept on file.
For account holders with loan accounts at the same institution as their bank account, the lender can access your account(s) to pay the defaulted loans without filing a lawsuit or judgment. When you sign for the loan, you give the bank full access to your accountâeven in the event of default.
Unpaid Debts to the Government
Individuals who owe student loans or taxes to the government may also find their bank accounts frozen. The Internal Revenue Service (IRS) can issue a tax levy for unpaid taxes. It cannot be lifted until the debt is paid in full.
The government can do a few different things for unpaid student loans, including seizing your tax refund or garnishing a percentage of your paycheck each month. When your loan is in default, your federal loan lender may garnish wages and taxes without pursuing a judgment from the courts.
If your bank account is frozen due to debt collectors or suspicious activity, your bank account should not be wiped clean of funds. Depending on the state where you live, there are limits to the type of income that can be taken from your account. For example, in some states, it is illegal for creditors to withdraw Social Security benefits, child support, workers' compensation, and more. However, you need to file a claim of exemption within 10 days after your account is frozen.
What an Account Freeze Means for You
As noted above, a frozen account likely means you won't have access to your money until the situation is resolved. You can't take out cash, and scheduled payments won't go through. The consequences can be severe.
Overdraft and Non-Sufficient Funds Fees
If payments bounce, you'll probably face a non-sufficient funds (NSF) charge. If you have money in your account, this will deplete your balance. If not, you'll dip into a negative balance putting you into overdraft territory. In this case, you'll have to pay additional fees and interest to cover the temporary shortfall.
Credit Damage
When a creditor seeks judgment against you, expect to take a hit on your credit report. The judgment will usually stay on your credit file for seven years for unpaid debts.
Account Closure and Possible Legal Action
If the bank suspects you've been using the account illegally for whatever reason, it could close your account completely. This means you'll be left without any money and have nowhere to put your paychecks. There's a good chance you won't be able to do any business with that bank in the future, and you'll have to find another bank.
But that's just one outcome. You could face fines and prosecution if the bank reports your account activity to authorities.
Some Funds Are Protected
Banks are required to protect some funds from being frozen in your account. These funds are the last two months of federal benefits and are added through direct deposit. Protected benefits include:
- Social Security
- Supplemental Security Income
- Civil Service Retirement System
- Veterans
- Federal Railroad retirement, unemployment and sickness
- Federal Employee Retirement System
What You Should Do
You should receive notice from the entity requesting payment or the bank when your account is frozen. In most cases, you'll receive a notice from both. You may not receive a warning before your account is frozen, though.
1. Contact Your Bank
Contact your bank immediately if your account is frozen to find out what your bank's freeze rules might be, what steps need to be taken, and to make sure there hasn't been a mistake. Ignoring a frozen bank account can worsen the problem, causing drops in your credit score and a build-up of bank fees.
2. Stop Outgoing Payments
Next, contact any person, business, or institution you've written a check to or set up automatic payments with. Ask to stop the check or payment.
3. If There's an Error, Provide Proof
If your account is frozen because of activity you know is legitimate, go to the bank with proof. If you prove there's no reason for the freeze, the bank can grant you full access to the account again. But do so promptly, as you may have limited time to make a claim. Get the creditor's attorney's information if your account is frozen over unpaid debts.
4. Get Help
Get free or discounted legal advice from legal clinics or legal aid services regarding state or federal protections for a frozen account. Or hire an attorney to help you sort out your next steps, including working out a payment arrangement.
Can My Bank Account Be Frozen If My Bank Fails?
Yes, the Federal Insurance Deposit Corporation (FDIC) may freeze your bank account for both deposits and any withdrawals (checks, automatic payments) if another bank hasn't yet assumed the failed bank's financial responsibilities. You are paid by the FDIC for any FDIC-insured balance in your account by check, often within a few days of the bank's closure.
Can Banks Freeze Your Account Without Permission?
Yes, a bank can freeze an account in response to legal action or suspected criminal activity. A bank can also place a hold on a deposit, if the deposit was made by mistake. You may need to wait to access your account until your bank can correct the error, even if it was your bank's fault for crediting your account.
What Are Some Bank Account Freeze Rules?
Your bank account can be frozen if a creditor or debt collector has a court judgment against you. It can also be frozen if the bank suspects unauthorized, irregular, or unlawful activities, such as those involved with money laundering, identity theft, counterfeit or stolen checks, or other financial crimes. Read your bank's deposit account agreement to learn more.
Bottom Line
Seek the immediate advice of an attorney or your state's legal aid assistance if your bank account is frozen to discover your rights and next steps. A frozen bank account can lead to additional fees and credit issues if you ignore the situation. Reviewing your bank's paperwork and terms around your deposit (checking) account can help you understand why and when your bank account freeze rules kick in.
