Definition and Examples of a Frozen Account
A frozen account is a bank or investment account that has a temporary restraint on it, preventing you from accessing funds. Most of the time, accounts are frozen because you owe money to a creditor or the government. In some cases, it may happen if the bank detects suspicious activity on your account.
For example, in the state of New York, the government can freeze your bank account if you’re more than two months behind on child support, you owe more than $300, and you haven’t made any payments in the past 45 days. To unfreeze your account, you must pay the amount or file a claim proving exemption or error within 15 days.
How Does a Frozen Account Work?
You can still add money to a frozen account, but you can’t take money out of it until you meet all the requirements to unfreeze it.
Many times, a frozen account happens because you’re behind on payments to a lender, so they’ve filed a lawsuit and won a judgment to freeze your account. The lender then delivers this judgment to your bank or investment firm, and they are legally required to freeze your account immediately. This process is also known as a bank levy.
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.
Court judgments may also instruct the bank to freeze your account for twice the amount you owe. For example, if you default on a personal loan for $2,000, they may put a $4,000 freeze on your account. You still only owe the $2,000, but this bigger freeze serves as a scare tactic to get you to act fast.
7 Reasons Why You May Have a Frozen Account
A financial institution can freeze your account for a variety of reasons. Below are seven, but keep an eye on your account in case your account is frozen for another reason.
- You owe money to creditors: This means they’ve received a judgment that allows them to levy (or seize) your bank account.
- You owe money to the government: The government has seized your account (without a judgment) to pay for federal taxes, child or spousal support, federal student loans, or other government debts.
- Your debit card or checkbook has been lost: The bank has temporarily frozen your account (with your permission) until you can find it.
- The bank has detected potential fraud or illegal activity on your account: This most likely happened from writing bad checks or making a suspicious deposit or transfer. The bank has temporarily frozen your account to investigate the situation.
- You were convicted of a crime: The government has ordered your accounts be frozen to cover damages to your victims.
- You own an investment account in which you’ve been “freeriding”: Freeriding means you were buying and selling securities before paying for them. In this case, the institution has put a 90-day freeze on your account to comply with Regulation T.
- You died and were the sole account owner: Your account has been temporarily frozen until a beneficiary or executor of the estate comes forward.
Your financial institution isn’t legally required to tell you that you have a frozen account before they freeze it. You may not find out until a check bounces or you’re hit with insufficient fund (NSF) fees.
Frozen Accounts and Federal Benefits: What You Need To Know
Under federal law, your bank cannot freeze two months’ worth of government benefits (such as Social Security, veterans’ benefits, Supplemental Security Income, among others) if they were direct deposited into your account.
Keep in mind that some federal benefits (such as Social Security) can be frozen and seized if you owe child or spousal support, federal taxes, or federal student loans.
For example, if you receive $1,250 in Social Security benefits each month, your bank is legally required to keep two months worth, or $2,500, of your balance unfrozen ($1,250 x 2 months = $2,500). The key here is that this money has to be direct deposited into a checking account or prepaid card. If you deposit a paper check or transfer the money from another account, it doesn’t count.
Even if you have nothing but government benefits in your account, it can still be frozen by mistake. If this happens, it’s your responsibility to clear this up with your bank and the court.
How To Unfreeze Your Account
Frozen accounts typically aren’t permanent. They can be unfrozen when you complete the necessary actions by the given deadline.
For example, if your account is frozen because of a creditor, lender, or government agency, you can unfreeze it by paying your debts. If there was suspicious activity on your account, you can unfreeze it by clearing up the activity with your bank. However, if you have been participating in fraudulent activity and your bank has proof, they can close your frozen account without warning or notice.
If you’re not sure why your account is frozen, give your institution a call and ask. If you can’t meet the requirements to unfreeze it, consider getting legal help from a local attorney.
- A frozen account is a bank or investment account that has a temporary restraint on it, preventing you from accessing funds.
- Most of the time, accounts are frozen because you owe money to a creditor or the government, or the bank detects suspicious activity on your account.
- Frozen accounts typically aren’t permanent and can be unfrozen when you complete the necessary actions by the given deadline.
- If you can’t meet the requirements needed to unfreeze it, consider getting legal help from a local attorney.