A few years ago I had my bank account frozen. I had no clue about the reason. Later I found out that it was due to my wife’s missing social security number, which she didn’t have, being a non-resident with a dependent work visa.
We had to give an affidavit of that fact to unlock the account. And it took more than a week to unlock the account. One my credit card auto payment was declined and I was assessed a late fee. I got the fee waived anyway, but that forced me to open other checking accounts.
When you owe money to a creditor and fail to communicate your plans for paying the debt, a levy might be placed on your bank account.
Let’s explore the ins and outs of a frozen account and three steps you can take to have a levy lifted. And what to do with a frozen bank account?
How Does a Bank Account Get Frozen and What Happens?
There are several ways an account can be frozen, including by creditors and the IRS.
For example, if you have an outstanding tax debt, the IRS can deduct all money from your account as well as take possession of any money coming into the account.
For most creditors to freeze your account, the court must first grant a judgment. There are, however, some creditors who are not required by law to seek a judgment before freezing your account.
If your bank account has been frozen, you will no longer have access to the funds in it. And if you have any outstanding checks, they will not clear.
Depending on the parties you wrote the checks to, as well as your bank’s policies, you might incur hefty fees for bounced checks.
Depending on the state, your account might be only partially frozen. In these states, up to two times, the amount owed to the creditor can be frozen. Any funds exceeding that amount will still be accessible.
Maintaining Your Finances When Your Account Is Frozen
As you can imagine, it can be incredibly difficult to maintain your finances without access to your money.
While the account remains frozen, the only monies you have access to are the ones you have in cash and in any other accounts that have not been frozen.
Most times, though, any and all of your bank accounts will be frozen. You might be able to make charges to credit cards.
Three Steps to Take to Unfreeze Your Account
Fortunately, it is fairly easy to unfreeze your account. If the IRS has issued the levy, you can simply contact them and set up a payment plan. In doing this, your account might be unfrozen immediately. The same also applies to most creditors.
The reason for putting a levy on your account is to get your attention. Creditors understand that once they freeze your account, you are going to do everything you can to make sure incoming funds no longer go to that account.
A frozen account will typically stay frozen until the debt is paid or you contact the debtor to set up a payment plan.
If you believe your account has been frozen in error, you can always challenge the levy. If the levy is justifiable, though, there are three simple steps you can take to have it lifted
- Set up a payment plan.
- Negotiate a lower debt amount and pay it in full.
- File bankruptcy.
A frozen bank account isn’t the end of the world. It simply means you need to better stay on top of your finances. Thankfully, because creditors are typically willing to work with debtors, setting up a payment plan can be the easiest way to have your account unfrozen.
Ramona @ Personal Finance Today says
Never had my account frozen for more than few hours and that’s because not paying the monthly taxes in time. As soon as that was solved, it was up and running. I always find useful to set a reminder for the payments (otherwise I just forget to make the payments) and also have enough cash and PayPal funds in case I need to support our family for more days.
My accounts were ALL frozen and monies taken (accounts zeroed) because my ex spouse owed back taxes. Although I had pened accounts in my name only, the accounts which were his had to be closed in person…he had gone to OH. The two banks linked my accounts to use the app….and then without notice, all 6 accounts used wholly by me were zeroed or frozen. I had .01 left in one account. The biggest part of the levy/garnishment the state took was my own recent paycheck deposit and, fom the other bank, my childs child support money. How can they do that when Im the only one using the account for over 5 years? I have nothing on which to live now and can’t unfreeze or lift the levy as its NOT my garnishment. Even creditors are not allowed to take exempt funds like child support and ALL your money! State laws need changing. What can I do? Anyone?