Reasons Banks Can Freeze Your Account

Reasons Banks Can Freeze Your Account – Receiving notification that your bank account has been frozen can be both worrying and irritating, not to mention humiliating. It’s even worse when you discover it while trying to use your debit card at the supermarket or trying to get cash for a night out with friends. Bank accounts may be frozen for a variety of purposes, each of which necessitates taking various steps to unfreeze them. The top three explanations for a bank account being frozen are as follows.

Key Takeaways

• Deposits into frozen bank accounts are still possible, but withdrawals and transactions are not.
• If a bank suspects criminal activities such as money laundering, terrorist funding, or writing bad checks, the account can be frozen.
• Creditors will file a lawsuit against you, causing your bank account to be frozen.
• For any unpaid taxes or student loans, the government may order an account freeze.
• For information about how to lift the freeze, contact your bank or an attorney.

What Is a Frozen Account?

Finding out that your checking account has been frozen can be a rude awakening. When a bank freezes your account, it may mean that something is wrong with it or that you have a judgment against you for an unpaid debt. An account freeze is when your bank prevents you from making such transactions. You can still manage your account, but only to a limited extent.

You can also see what’s going on in your account and collect payments, including your paycheck. However, the freeze prevents any withdrawals or transfers from taking place. As a result, whatever money is deposited into the account during this period remains there. This includes any preauthorized transfers set up in your checking account. But whether you have a rent or mortgage payment, a car loan payment, or a monthly gym membership fee, there’s a fair chance they won’t be processed.

When your account is frozen, preauthorized transfers scheduled from your account will bounce.

Suspicious or Illegal Activity

If banks believe account holders are engaging in criminal activity, they have the authority and discretion to freeze accounts. Following events such as the September 11 terrorist attacks, banking regulations became more stringent in order to crack down on criminal organizations that conduct their business through financial institutions.

Banks regularly track accounts for illegal activities such as money laundering, in which large amounts of money obtained by illicit activity are deposited in bank accounts and passed around to appear as though they came from a legitimate source. Banks also freeze accounts due to suspicions of terrorist funding.

If you write and cash bad checks, your bank can put a hold on your account. Even if you don’t have enough money in your account, it’s fine to try to cash a check you’ve written. After all, the check could take a few days to clear, right? The bank, on the other hand, disagrees. Writing checks on an account with insufficient funds and doing so on a daily basis is called fraud.

Even if the deposits are valid, large and irregular deposits will cause your account to be flagged. When you win big at the casino, you’ll almost certainly notify the bank when you go to deposit your winnings.

You could also have been a target of identity fraud if your bank flags suspicious activity that you’re confident you weren’t responsible for. Some of the best credit monitoring programs also provide features such as identity theft insurance and helpful tools for improved data security.

Unpaid Debts Through Creditors

If you have any unpaid loans, your creditors will request that your bank freeze your account so that you can pay your bills. However, they must first obtain court permission before taking this action.1 They do so by obtaining a judgment against you. This information is then forwarded to the bank and kept on tape.

The lender can access your account(s) to settle the defaulted loans without filing a complaint or judgment if you have your loan accounts at the same institution as your bank account. You offer the bank full access to your account when you sign for the loan, even if you default.

Unpaid Debts to the Government

Individuals who owe the government money for student loans or taxes can have their bank accounts frozen. Any unpaid taxes can be levied by the Internal Revenue Service (IRS). It will not be lifted until the debt is fully paid off.

For unpaid student loans, the government can take a variety of actions, like seizing your tax refund or garnishing a portion of your monthly paycheck.4 If your loan is in default, the federal loan lender would possibly garnish wages and taxes without seeking a court judgment.

Your bank account should not be washed clean of funds if it is frozen due to debt collectors or suspicious behavior. There are restrictions on the types of money that can be deducted from your account depending on where you live. In certain states, creditors are prohibited from taking Social Security insurance, child care, workers’ compensation, and other benefits. However, you must file an exemption petition within 10 days of your account being frozen.

Read more:

• Ecobank code for transaction to other banks: All the particulars
• HOW DO I TALK TO A CUSTOMER CARE AT ACCESS BANK
• Keystone Bank Account Balance Code With Phone 2021

What an Account Freeze Means for You

As previously stated, a frozen account means you won’t be able to access any of your funds until the problem is resolved. This means you won’t be able to withdraw any funds, and your planned payments will be canceled. You’ll almost certainly be charged a non-sufficient funds (NSF) fee since these payments will bounce. This would deplete your account balance if you have money in it. If you don’t, you’ll end up with a negative balance and an overdraft. To make up for the temporary deficit, you’ll have to pay extra fees and interest.

You can expect a hit to your credit report if a creditor files a lawsuit against you. In most cases, a judgment for unpaid debts will remain on your credit file for seven years.

If the bank suspects you of using the account improperly for whatever excuse, your account can be closed entirely. This means you won’t have any money or a place to put your paychecks. There’s a fair chance you won’t be able to do business with that bank again and will have to look for another. But that’s only one possible outcome. You may face fines and/or prosecution if the bank reports your account activity to authorities.

What You Should Do

Before your account is frozen, you should obtain notification—either from the person requesting the freeze or from your bank. In most instances, both will give you a note. In any case, if your account is frozen, contact your bank right away to find out what steps need to be taken and to ensure there isn’t an error. Remember that ignoring a frozen bank account will exacerbate the issue, resulting in a decrease in your credit score and an accumulation of bank fees.

If your account has been frozen due to legitimate activity, go to the bank with evidence. If you can prove that the freeze isn’t justified, the bank will likely lift the restriction and give you full access to your account again.

It is important to obtain the creditor’s attorney’s details from your bank as soon as your account is frozen due to unpaid debts. You’ll need to figure out what’s going on with your account and come up with a payment plan.

Consider seeking legal advice. Consumer bankruptcy lawyers do not compel you to file for bankruptcy; rather, they educate you about the legal options available to creditors and your rights in these cases. There’s not anything you can do to get access to your account if you owe money to the government. Bear in mind that even though you file for bankruptcy, the debts will remain.