Many consumers have questions about the debt collection process creditors may use. Often, they are confused about what a collector can and cannot do in order to legally collect a debt. The collection process can lead to a creditor seeking your assets, and that includes your checking account under certain circumstances.
Court Orders
A debt collector must first win a lawsuit in court before they can freeze an asset like your checking account. Even after that, they must get an order from the judge in the case specifically allowing them to freeze your bank accounts, called a writ of execution. You will have plenty of warning this process is happening, because you will be served legal papers before the lawsuit.
Finding your Account
Once the creditor has an order allowing them to seize your assets, they need to find the bank where you have your checking account. If the creditor doesn't know where you live, they may hire a skip tracing company to try to locate you. The creditor may then call banks in the area to try to locate your account. The creditor will get a writ of execution, and have it served to local banks in an attempt to locate you. While the bank cannot give out your personal information, it is required to hold your money for the creditor. After about 21 days, it will release the money to your creditor to pay off the debt.
Compounding Problems
Having all of the money frozen in your checking account can cause quite a few problems. When the bank receives the order to withhold money from your checking account, any outstanding checks you have written will probably be returned unpaid. The bank still may charge you the non-sufficient funds fees it charges for a returned check. Since most or all of the money in your account will have been held out for debt payment, this is extra money you will need to pay. If your paycheck is direct deposited, you may not be able to stop the deposit soon enough, and you run the risk of having one or more paychecks deposited into the account. The creditor can take that money as well.
Prevention
Work out an arrangement with your creditors before the situation gets to this critical stage. Often, creditors will accept payments or they may work out a lump sum settlement with you. Creditors may also file a lien against your property or seek garnishment of your wages, so working out a settlement can help prevent these problems as well. If an account freeze is imminent, you may want to close the account and use cash or money orders for a while until the situation improves. If a creditor is seeking garnishment of your wages or a freeze on your checking account, filing for bankruptcy will stop these actions immediately.
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