Frozen Accounts

August 6, 2017
 
 

Frozen Accounts:

Sometimes a creditor will file suit and try to seize some of a consumer’s assets to pay off a debt. Creditors can freeze a consumer’s checking account if the court allows it. New York law provides guidelines on how creditors may freeze an account, how the debtor may free up those assets, and how much money can be frozen.

 

How it Works

New York and federal law establish procedures for freezing an account. The most important rule for debtors is that the bank may only freeze funds that were in the account when you filed. Any money deposited after that point is freely available. However, the sudden loss of access to an account can be a shock.

Creditors do not necessarily tell the debtor that an account is about to be frozen. In those cases, the consumer only becomes aware that the account has been frozen when they try to use the account. This can be a huge problem for an individual who needed the money to pay bills. To make frozen accounts more troublesome, the financial institution will generally freeze twice the amount of the judgment, further cutting into the debtor’s remaining assets.

The financial institution, not the creditor, would notify the debtor that an account has been frozen. If this happens to you, there are things you can do get access to your money. Working with a bankruptcy attorney might make it easier to get that account unfrozen or prevent an account from being frozen in the first place.

 

What You Can Do

Upon filing a Chapter 7 or Chapter 13 petition, the creditor may no longer withdraw funds from the frozen account. Filing for bankruptcy may also remove restrictions on the account. You should regain immediate access to the money in the account, though this is not always true.

If funds remain frozen after filing for bankruptcy, you can file to a motion to have the funds unfrozen. If the bankruptcy court orders it, the bank has to release the money in the account. This process can take a week though.

New York’s Exempt Income Protection Act also protects individual accounts that contain up to $2,100 from being frozen by a creditor. If your account had less than this amount when it was frozen you can ask for a release form at the bank. Just speak to a bank officer.

If you have questions about bank accounts that have been frozen, or have questions about how bankruptcy will affect your accounts, contact me to discuss your situation.

Attorney Katz can be reached at (800) 251-3529