Bank accounts can be frozen for such reasons as your financial institution suspecting fraud or illegal activity. Your funds can also be made inaccessible if your bank is adhering to a court order about unpaid debts you owe. In addition, the government can freeze your account if you have unpaid student loans or taxes.
Regardless of the reason, having a bank account locked can be an upsetting situation that makes your basic financial life difficult. You might be left scrambling to pay bills and cover daily expenses.
Read on to take a closer look at this situation, including why bank accounts are frozen and what you can do if you find yourself facing this scenario and want your money unlocked.
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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 autopay 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 judgment 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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SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
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