Freezing Bank Accounts

• Creditors usually give borrowers several months to catch up on past-due payments or make special arrangements. When unable to collect debt, a creditor has a right to take the next step and file a lawsuit against a debtor to seek a monetary judgment. When the court grants it, he can attempt to collect debt by garnishing the debtor's bank accounts. Judgment documents presented to the bank that holds debtor's bank accounts allow the bank to freeze the money. The bank must notify the account holders within one business day.
  
  

Right to Setoff

• If a creditor is also a debtor's primary financial institution that holds his checking and savings accounts, it has a right to setoff--to freeze the balances without filing a lawsuit or having a court hearing. It can withdraw the past-due payments without obtaining a monetary judgment. A creditor may not freeze or collect any debt from exempt income. If a creditor violates the law, an account holder can file a lawsuit against him.
  
  

Exempt Income

• Certain types of income are exempt from collection. A creditor may not freeze it or take any part of it to repay debt. Such income includes but is not limited to Social Security, Social Security Disability, private and public pensions, retirement income, public assistance, unemployment, veteran's benefits, workers compensation, alimony, spousal and child support. If a debtor has a joint account holder who is not a party in the lawsuit, his income is exempt from collection. A bank must provide an exemption form for the account holder to fill out if he has exempt income in his account.
  
  

Seeking Legal Assistance

• If a creditor freezes his bank accounts, a debtor can seek legal assistance to determine his options. A qualified attorney can figure out the next steps and help him to gain access to his money even if he has no exempt funds. A lawyer can request a court hearing to provide information and documentation to vacate the monetary judgment against the debtor. If the court vacates the judgment, the creditor will have no right to place the freeze on the debtor's accounts in the future.