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Injuries or family illnesses, divorce or job loss are unexpected life events that can cause people to slowly slip deeper and deeper into debt. Pretty soon, letters start arriving from creditors followed by relentless collections phone calls. In this situation, it’s easy to feel overwhelmed, especially if funds are not available to pay off the rapidly growing debt. People who are burdened with debt often ask themselves: “Can a creditor freeze my bank accounts?” Here’s a look at what creditors can and cannot do when they are owed money. 

If you are struggling with debt, bankruptcy may be a good option for you. Contact Sirody & Associates, experienced bankruptcy attorneys, for a free consultation. Call (410) 415-0445.

What It Means To Have A Frozen Account
When a creditor or government agency is owed money from someone who has failed to pay, they may choose to apply for a bank account levy to be added to the debtor’s account – to freeze the funds. This can have disastrous consequences for the debtor, because while their account is frozen, they will be denied access to their money and any bills paid or checks written during the freeze will not clear. In many cases, the person will not even get advance notice that their account is being frozen. While it’s shocking that someone could be denied access to their own money, it is unfortunately entirely legal for creditors to freeze bank accounts as long as they have a  judgement against the debtor.

Laws Governing Frozen Accounts
The Internal Revenue Service and some other creditors such as child support and student loan agencies can actually freeze (or “attach”) a debtor’s account without a court judgement against the debtor. However, there are limits to the amount of money a creditor can extract from the account. The limits are based on what types of funds, if any, are protected within the account. A court hearing is required to determine whether the funds in an account are eligible for protection, and the process for scheduling the hearing varies from state to state. In situations like this, it’s beneficial to work with an experienced bankruptcy attorney.

Dealing With Debt Collectors
There are preventative steps that can be taken to ensure that a bank account does not get levied. For starters, it’s best not to ignore debt collectors who are trying to collect a debt. Most creditors, including government and state agencies, will work with a debtor to set up a payment plan before resorting to filing a judgement to freeze their accounts. It’s important to respond quickly and respectfully, but be sure that you don’t agree to terms that you cannot afford. This is another case in which it is beneficial to work with an experienced attorney. 

Other Steps To Avoid Frozen Accounts
Another tip to avoid a frozen account is to ensure the working checking account that bills are paid from is at a bank different from one that money is owed to. A bank that is owed money (e.g. from unpaid loans or overextended lines of credit) has every right to freeze an account in order to recoup its losses. Social security recipients may be able to avoid a frozen account by working with an attorney who is knowledgeable about the special protections that can help ensure Social Security deposits are not garnished. Some other government assistance deposits, such as Federal Employment Retirement System deposits, are prohibited from being frozen if they are distributed to the account via direct deposit.

Unfreezing a Frozen Account
In the state of Maryland, a debtor may unfreeze their frozen accounts by getting the judgement against them erased (also referred to as “striked” or “vacated”). In order to do this, the debtor must file a motion with the court and must explain very specifically why the default judgement was wrong and should be vacated. This is yet another case in which it is very helpful to work with an experienced attorney.

Find An Attorney Who Can Help
If you accounts are frozen, leaving you without means to pay your bills, find an experienced bankruptcy attorney. Each state has slightly different laws regarding exempt and non-exempt funds, but an experienced attorney will be well-versed in the details of these laws. Bankruptcy can help lift your financial burdens and make a fresh start. At Sirody and Associates, we’ve been helping Marylanders get out of debt for over 20 years. We will guide you through the process of getting your bank accounts unfrozen and will help you make a fresh start. Contact us online for a free consultation or call (410) 415-0445.