Your bank account may be frozen if your bank suspects fraud or illegal activity, or if they’re complying with a court order due to unpaid debts. The government can also request an account freeze for any unpaid taxes or student loans.
Whatever the reason for the lock-up, finding out your bank account is frozen can be both alarming and frustrating. It often comes with no warning, and suddenly being separated from all of your funds can leave you scrambling to find another method of payment.
Bank accounts are frozen for a number of different reasons, and each one requires a specific set of steps to get the bank to unlock the account. Read on to learn how to get to the bottom of a frozen bank account.
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What is a Frozen Bank Account?
When a bank account is frozen it means the bank will no longer let you perform certain transactions. You can still access your account information and monitor your account. You will still be able to make deposits, including manual or direct deposit of your paycheck.
However, you won’t be able to make any withdrawals from the account or transfer money from the account to a different account.
Typically, any previously authorized payments or transfers will not go through either. That means that any bills you have set up on auto-pay likely won’t get paid.
Why A Bank Would Freeze Your Account
Banks have the authority to freeze, or even close, a bank account for a range of reasons. These reasons generally fall into the following three categories.
1. Suspected Fraud
A bank’s reputation relies heavily on its ability to keep money safe, so account security is typically taken very seriously.
Banks are familiar with how you tend to spend your money, so an unusually large purchase or cash withdrawal can indicate fraud and trigger an account freeze.
Banks are also familiar with where you typically spend your money. A transaction that occurs in a different city or, especially, a different country can be a red flag that could trigger an account freeze.
It can be a good idea to inform your bank about travel plans both nationally and internationally to help prevent any account freezes during a trip.
If your bank flags suspicious behavior you’re certain you weren’t responsible for, it could be due to identity theft.
2. Unpaid Debts
Missing a single bill payment isn’t generally something that would disrupt access to your bank account, but a longstanding overdue bill might.
Collection agencies that purchase unpaid debts can secure court judgments for those debts, giving them the power to freeze (or “attach”) the bank accounts of debtors until they paid the money they are owed.
Most creditors can not have your account frozen unless they have a judgment against you. However, not all. Government agencies that collect federal and state taxes, child support, and student loans do not need to have a court judgement to attach your account.
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Any of the following types of outstanding debt could be the cause of a frozen account.
• Unpaid Taxes
• Student Loans
• Car Loans
• Personal Loans
• Civil Lawsuits
• Divorce Settlements
• Child Support
3. Illegal Activity
A bank account that is used to conduct criminal activity, or shared with someone who might be, can lead to the account being frozen.
Banks also work directly with law enforcement agencies and will freeze accounts of individuals that have been convicted of a crime, or are under investigation.
Some specific activities that could lead to an account freeze include:
Writing Bad Checks. A single bounced check isn’t cause for alarm, but knowingly writing multiple checks from a bank account that doesn’t hold the funds to support them is illegal. If a bank observes too many bad check transactions, they may be inclined to freeze the account and alert the police.
Money Laundering. This is the process of generating money through illegal activity, and attempting to make it appear legal via multiple financial transactions. All banks and financial institutions are required to comply with federal anti-money laundering regulations and report any suspected activity directly to the authorities.
Terrorist Financing. Funding or organizing funds for terrorist groups and organizations is an illegal activity that can also result in an account freeze. Banks comply with federal laws that help prevent terrorism by freezing and reporting any accounts that exhibit suspicious activity related to terrorists.
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How Long Can A Bank Account Be Frozen?
Banks don’t typically follow any set rules regarding how long an account can be frozen. The length of time generally depends on how long it takes for the account holder to notice the freeze, contact the bank, and can resolve the issue that caused the freeze.
How Does a Frozen Bank Account Affect You?
Having a frozen bank account essentially means not having access to your money, and it can be especially difficult if it is your primary bank account.
Frozen funds means not being able to make purchases with a debit card, or withdrawals from an ATM. It can also mean that any auto-payments linked to that account will likely not be fulfilled, and any scheduled transfers won’t be completed.
Because these payments can bounce, you could also incur a non-sufficient funds charge, which may be deducted from your account.
If you don’t have enough in the account to cover it, you could end up with a negative balance, putting you into an overdraft. In this case, you could end up having to pay additional bank fees and interest to cover the shortfall.
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Those with frozen accounts often must resort to using credit cards and can end up accumulating debt in order to cover their expenses while they sort out the issue with their bank.
If the bank suspects you’ve been using the account illegally for any reason, it could close your account completely. It can also report your account activity to authorities.
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How Do You Unfreeze a Bank Account?
It can be a good idea to contact your bank as soon as you notice a freeze on your account. When discussing the issue, it can help to have a clear account of your most recent locations and transactions, and be prepared to share any information and supplemental documentation that can help clear up the issue.
If you can show that there’s no reason for the freeze, the bank will likely release the suspension and grant you full access to the account again.
If your account is frozen over unpaid debts, it can be a good idea to get the creditor’s contact information from your bank and then reach out to them directly. Once you have a better idea of what’s going on with your account, you may be able to work out a payment arrangement.
When a bank freezes your account, it can mean there is something wrong with your account or that someone has a judgment against you to collect on an unpaid debt.
The government can also request an account freeze for any unpaid taxes or student loans.
Once the bank account is frozen, you cannot make withdrawals but can only put money in your account until the freeze is lifted.
If your account is suddenly inaccessible, it can be a good idea to contact your bank immediately to find a resolution.
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If you’re on the hunt for a new type of money account, you may want to consider opening a checking and savings account with SoFi.
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