How long can a bank restrict your account (2024)

• Debt

• ByIzzy M
• Reviewed by Matt Mayerle
• Edited by CreditNinja
• July 9, 2022

There may come a time when you make a transaction, and your bank unexpectedly freezes your account. A frozen account can disrupt your life and limit what you can do with your finances. Learn why banks restrict a customer’s financial account and how long it may take to unfreeze your money.

What Causes a Frozen Bank Account?

Financial institutions have the authority to initiate an account freeze if they suspect illegal or suspicious activities. Various activities may result in a frozen bank account, such as bad checks, unpaid debts, suspected money laundering, and suspected terrorist financing.

Bad Checks

Your bank can restrict your account when you have no money, and your account gets overdrawn. Suppose you write a check, and the recipient cashes it when you have a low balance. The check will bounce, and your account will become negative. Bounced checks, or bad checks, can warrant account freezes. Once you add money to your bank account and fix the negative balance, your bank will remove the temporary freeze.

Unpaid Debts

If you have unpaid debts, creditors or debt collectors may issue a lawsuit and summon you to federal court. If you receive a court judgment, the judgment creditor can initiate an account freeze to pressure you into paying the outstanding debt.

Fraudulent Transactions

When a bank notices suspicious transactions, they will freeze a customer’s account to investigate. For example, a substantial deposit may cause a bank to suspect illegal activity, such as money laundering. The financial institution will attempt to trace direct deposits to ensure criminal enterprises do not supply the money. If the bank’s fraud department thoroughly investigates the suspicious activity and finds nothing amiss, you can expect a quick solution.

Are Customers Informed of Frozen Bank Accounts?

You can expect to receive some form of notice before your bank account is frozen. A bank must inform customers before they freeze bank accounts. However, only certain states require financial institutions to provide advance notice.

If your account is frozen due to an unpaid debt, such as unpaid taxes, you will receive a court judgment before your bank suspends your account. If your bank account is frozen before receiving notice of a lawsuit, you did not receive proper notification under the law. Improper law procedures can help you recover your restricted bank account and contest the lawsuit.

How Long Will I Have a Frozen Bank Account?

The amount of time it takes to remove an account freeze depends on the reason. Suppose your bank freezes your account due to insufficient funds. In that case, you can restore your account by simply adding funds to your checking account. The average holding period when an account is frozen is two to three weeks.

If your bank account was frozen due to a court judgment, you would have to erase the judgment or obtain a release. Erasem*nt of a judgment is also known as “vacating” the judgment.” Individuals have ten days from the date of an account freeze to file a claim of exemption. Once a judge vacates the judgment, frozen accounts are automatically released.

Can I Make Bank Deposits With a Frozen Bank Account?

A bank account freeze prevents you from withdrawing non-exempt funds, but you can still receive and make deposits. A freeze means you cannot access your savings account, dividends, trust funds, or wages. You may have worked hard to participate in the 6-month savings challenge, but a bank freeze will prevent you from accessing that emergency fund.

Suppose your bank account is frozen as a result of a court order. In that case, the holding period gives you time to either settle the unpaid debt with the creditor or counter-sue. The only exception to a bank freeze is direct deposited government benefits. Specific laws protect your federal benefits from garnishment. Have you received Social Security benefits two months prior to a court judgment? Rest easy knowing that money is exempt.

Does a Frozen Account Affect My Credit Score?

When banks and other financial institutions restrict accounts, your finances can take a toll. But is your credit score negatively affected when banks freeze your account?

A restricted bank account does not affect your credit, but the reason for the freeze does. An overdraft may not affect your credit directly, but a late payment will. Suppose your bank account is in the negative and a scheduled payment fails. In that case, a red account will affect your payment history, and your credit score can decrease. If your account is frozen due to a creditor lawsuit, your credit score has already decreased.

How To Fix a Frozen Account?

If your bank account has been frozen, you may want to quickly release your money to get your life back on track. There are a few ways to recover bank accounts, such as vacating the judgment or fixing a negative account.

Add Money to Your Bank Account

A bank can freeze accounts if the account holder has insufficient funds. If you have money in your savings account, you can transfer money over to get your account out of the red. If you need a loan, consider a personal loan instead of something like a payday loan online.

To prevent an overdraft freeze in the future, you can inquire about overdraft protection. Overdraft protection is a service that links two accounts in the event of insufficient funds in your checking account. Suppose your account is overdrawn by $100. The bank would transfer that amount from your savings account to prevent a negative balance.

Vacating the Judgment

A motion to vacate is a written request asking if the judge can dismiss the court judgment. You can file for a motion to vacate by first consulting your defense attorney. The judge may rule in your favor if you provide the necessary information. A judge who sides with you will dismiss the case against you. At this point, the bank will unfreeze your account.

Call the Bank

If the bank froze your account because of suspicious activity, you could call to speak with a bank teller. The bank teller will connect you to the bank’s fraud department, who will ask you questions about your recent activity. It may be possible that you have been a victim of identity theft.

References:
What Should You Do If Your Bank Account Is Frozen?
Frozen Bank Accounts
SJ Consumer Law-Frozen Bank Accounts