Creditor Froze My Bank Account without Notice - Now What?

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When a creditor has initiated a claim against a person that owes money to the financial institution, it is possible to take certain actions that may negatively impact the borrower. However, only so much may be accomplished without a judgment or settlement pursued through the courtroom and with a judge before these processes complete.

There are several laws and Acts that protect private citizens from their bank accounts being targeted by creditors. If monies are owed by the borrower to a financial institution, the bank account may not be the target of seizing these funds in usual circumstances if the money is from government benefits, pensions, Social Security Disability and Supplemental Income and similar items that may include financial aid from a college or university. One state has a specific exemption that covers all of these funds through the Exempt Income Protection Act, and various other states throughout the country have similar exemptions that protect private citizens from seizure by the creditor.

While the amounts that are affected may be different, usually the amount is around $2500 that may be protected from the financial institution. Unless a judgment has been issued by a court of law, the individual is safe from financial seizure and bank account freezes. However, not all states have these protections in place, and some creditors may take advantage of these matters in those locations. If there is no regulation or law that keeps these actions from transpiring, the private citizen may need to hire a lawyer and go through court proceedings to have his or her bank account unfrozen and access to his or her own funds once again. However, through federal law, the specific funds are still protected.

What Is Protected from Seizure through Federal Regulations?

The federal government protects private citizens from seizure and complications that may arise when a creditor is owed and the person is not able to pay back what is owed. However, there are several types of money in accounts that are protected from being taken or affected. Social Security payments from Supplemental Income, Disability and other benefits are safe. Any benefits from federal and civil service and retirement payments are protected to include veterans’ benefits and monetary income. Federal student aid such as student loans and often grants and scholarships cannot be seized. FEMA is also not subject to creditors.

All of these benefits are exempt even if checks are cashed. If the individual uses direct deposit, additional protections are provide by the federal government. While it is best to deposit government benefits in a separate account, certain monetary payments may be protected. An account that has funds electronically deposited is not subject to being frozen due to a judgment in favor of a creditor or if the financial institution attempts to levy the income. However, if paper checks are received, these actions may be completed by the lender. It is then that extra steps must be taken to free up the account.

Exceptions and State Exemptions

When there is too much money in an account, or if the debt is a specific kind, the individual may face a frozen account. Additionally, when facing a judge, the person may find a creditor seizing his or her monetary assets through a bank account when it has more than two months’ of deposits within. However, additional state exemptions protect other income. These could provide more protection on top of what the federal government has already issued to private citizens. However, these vary from one state to another. The usual amount of income that is exempt from garnishment by judgment with creditors is 25 percent of disposable income through earnings with a job.

State benefits that are received are usually exempt from freezing or seizure. These may include unemployment when the person does not have a job, public assistance in another manner, workers’ compensation payouts, retirement benefits provided by the state government, disability and similar benefits received through support. There are some other types of support that could remain exempt to include retirement and pensions through different funding, child and spouse support payments and some insurance payments.

Legal Help for Creditor Freezes and Levies

When a creditor has initiated the process to freeze a bank account, it is important to contact a lawyer. If any of the exemptions are in place, the account is protected from these actions. Legal representation may ensure the rights of the individual are protected.


Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.

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