Bankruptcy and Frozen Bank Accounts

Frozen bank accounts can have a devastating effect on your finances, making it impossible for you to use your debit card, write a check or withdraw cash for everyday living expenses. Debt collectors can obtain a court order allowing them to freeze, or garnish, your bank accounts because you failed to pay a debt obligation such as a credit card. People with frozen bank accounts often file for bankruptcy as they seek protection from the federal bankruptcy courts.

The Automatic Stay

A frozen bank account can be reopened in as little as one day following an official bankruptcy filing. People filing for bankruptcy are protected by an initial court ruling called an "automatic stay." Legal website Nolo.com reports that the automatic stay immediately halts all debt collection efforts and forces banks to remove freezes on bank accounts. That makes the automatic stay one of the most powerful components of bankruptcy protection. It is a key reason why many people file.

Civil Judgments

Bank garnishment and frozen accounts are possible only after the creditor or debt collector successfully sues you in civil court and wins a judgment, according to the Neighborhood Economic Development Advocacy Project, a nonprofit consumer assistance organization. A judgment in a debt lawsuit states that you defaulted on a credit account and that you legally owe the creditor or debt collector a specific amount of money. From there the creditor or debt collector can ask the judge to allow your bank accounts to be frozen.

Withdrawing Funds

The creditor or debt collector can begin withdrawing money from your bank account to satisfy the judgment after the civil court approves the garnishment. The debt collector can withdraw the amount that you owe in a lump sum or withdraw it in installments as it becomes available. While the bank account is frozen you cannot withdraw money, use your debit card to get cash or write a check. Money such as the direct deposit from your paycheck can, however, be deposited into your accounts. That makes it easy for the debt collector to withdraw money each time you are paid.

Default Judgments

Bank accounts often are frozen after someone being sued for an unpaid debt fails to show up in court for a scheduled hearing before a judge. That results in a default judgment in favor of the creditor or debt collector. By failing to show up in court you forfeit your rights and allow the creditor or debt collector to win the case without having to prove the case. "The New York Times" reported in 2010 that creditors and debt collectors were increasingly turning to the courts for help in collecting debts, and counted on receiving default judgments as a key part of their strategy.

Avoiding Garnishment

Paying attention to legal notices about unpaid debt is vitally important for avoiding bank garnishment and frozen accounts. The creditor or debt collector simply cannot gain access to your bank accounts without a ruling from a judge, and you have the right to be in court when that happens, if it happens at all. "The New York Times" reports that people who show up in court to defend themselves are often approached in the courthouse before the hearing by the opposing attorney who offers to settle the case on the spot. Settlement allows you to pay the amount owed, possibly in installments, and avoid garnishment and further collection efforts.