Can Debt Collectors Freeze Your Bank Account?

It's embarrassing and inconvenient to try and make a purchase with your debit card or extract money from the ATM only to discover a hold on your bank account. If you have unpaid debts currently owned by a collection agency, an unexpected bank account freeze is a possibility. Although bank account freezes are only temporary, they indicate an impending account garnishment.

Facts

After suing you, a debt collector requests a writ of garnishment from the court and serves the writ on your bank. Once your bank receives the garnishment order, it places a freeze on your bank accounts. According to the U.S. Department of the Treasury, a bank account freeze doesn't prevent you from depositing money, but it does prevent you from withdrawing funds. Your bank has the right to charge you fees for any checks and debits that fail to clear during the freeze.

Function

The bank account freeze serves two purposes. Its main function is to prevent you from withdrawing money from the account. Because of this, you aren't likely to receive formal notice of the garnishment until your bank account has already been frozen. The freeze also gives you time to either contest the garnishment before it occurs or notify your bank if your account contains any funds that are exempt from seizure by a debt collector.

Benefits

Debt collectors can garnish funds from your checking account, but a debt collector's court judgment doesn't entitle it to garnish certain types of military benefits. The Federal Trade Commission (FTC) notes that certain funds in your checking account, such as Social Security payments, military annuities and retirement pension payments, are exempt from being either frozen or garnished by debt collectors. Notify your bank of any exempt funds within your checking account to have those funds released early.

Effects

Unless the debt collector is the federal government, its ability to freeze your checking account rests solely on the validity of its judgment against you. If you contest the judgment and successfully prove your case to the court, the court vacates the original judgment. When this occurs, your bank must release your frozen account. If the debt collector has already garnished your account, you can appeal to the court for the return of any previously garnished funds.

Warning

After the debt collector garnishes your account and your bank lifts the freeze, this doesn't mean that a subsequent checking account freeze won't occur. If the debt collector wasn't able to recover the full amount of the judgment through one garnishment, it can wait until you deposit more money into your checking account before serving your bank with a second writ of garnishment and beginning the process anew.