Banks of all kinds, and even the best online banks, can place holds on deposited funds, and other entities can put holds on the entire contents of a bank account. Holds on bank account deposits are initiated for a few different reasons; the main one is to prevent returned checks. This can protect both banks and account holders because when checks are returned due to unavailable funds, banks must cover the payments and the account holders can be charged overdraft fees. A legal hold on a bank account debt is more involved than a hold on a few deposits, however, and it may take substantial legal and financial efforts to clear up.
Legal Hold on Bank Account Funds
Bank accounts can be temporarily frozen when fraud is suspected; when a bank account holder has past due debt, their creditors may be able to create a legal hold on the entire account. This hold on bank account funds is also referred to as a bank account levy. Once such a bank account levy has been initiated, the account holder cannot access any of the money in their account. In addition, any outstanding checks written on the account will not clear until the situation is resolved.
According to Consumer Law Center Inc., debt collectors must obtain court judgments against bank holders to freeze bank accounts. Banks are not required to inform account holders of this impending action; once they get a levy notice, the account must be frozen immediately. The creditors are not required to notify the account holder beforehand either, but they do have to let the person know that they have filed the lawsuit and obtained a judgment.
Other Entities Placing Holds
The IRS can also put a legal hold on a bank account for outstanding income tax debt. In some cases, they will take the funds to pay that debt. They can also place tax liens on personal property, like vehicles and real estate.
The IRS will also garnish a person's wages in certain situations, such as a failure to pay child support or failure to pay owed income taxes. This sort of wage garnishment involves seizing a certain percentage of one's paychecks from the employer before the paycheck has even been received.
Removing Legal Hold on Bank Account
There may be exceptions for government benefits that are automatically deposited into an account, such as Social Security income, Federal Employee Retirement benefits and veterans benefits. These may continue to be deposited, although the account holder may not be able to access them. Even if those are still being received, not having access to your money can be a real disaster, especially when it comes as a surprise or at a bad time.
The first thing you should do when a bank account is frozen is contact the bank. Doing this in person is best. Creditors may be able to withdraw some of the funds, so it might also be a good idea to file for bankruptcy to protect yourself. Once the account has been unfrozen, those funds will then become part of the bankruptcy estate. Claiming bankruptcy and unfreezing a bank account is not always that easy.
To remove a legal hold on bank account debt, the account holder may want to reach out to a debt collection lawyer to help file a motion to vacate the judgment. This will require a court appearance by the creditor and account holder, and evidence supporting the account holder's case. If the account holder wins, the monies will then be released to them.
Consider also: Can They Put Holds on Savings Accounts?