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What Can I Do If My Bank Account Is Frozen?

What can you do if your bank account is frozen?   A frozen bank account can be a very stressful situation.  If the lawsuit creditor has frozen a large amount, it can be devastating to your budget.   You may not be able to pay any of your bills.  Bank account freeze can be a challenge, but there are some things you can do to repair the situation.

How does a Bank Account “Freeze” Happen?

A bank account “freeze” is a common expression for a bank deposit account garnishment.  This is a type of garnishment allowed under Indiana collection statute.  It is also called a bank account “levy.”  It is a procedure that can only be pursued after a lawsuit reaches the judgment phase.  The process happens quickly and usually with no warning.  You are simply notified that the balance of your account (on that day) has been frozen.  You can usually use additional amounts deposited after the “freeze” day.  A hearing is usually set out approximately 60 days later to determine the fate of the frozen funds.  Some of the”frozen” funds can be found to be exempt or protected under Indiana statute.   Usually, however, you will permanently lose the majority of the “frozen” funds after the day of your hearing.   The funds are then applied towards the satisfaction of the judgment the creditor has held against you.

What can I do when my Bank Account is “Frozen?”

When your bank account is “frozen,” you need to quickly assess your entire debt situation.  If you have excessive debts, you may need to file bankruptcy.  Bankruptcy is the most powerful tool for shutting down a bank account “freeze.”   If you file bankruptcy before bank account “freeze” hearing, the court will require the creditor to return the funds.   Do not expect this process of returning access to the “frozen” funds to be instantaneous.   The process of having the funds released to you usually takes 2-3 weeks.  An order from the creditor must be generated and then signed by the judge for the bank to release the funds.

You may, however, be required to turnover your newly released funds to the bankruptcy trustee.  In such cases, you will lose part or all of the released funds.  However, many bank account “freeze” situations are not of sufficient size for a Chapter 7 bankruptcy trustee to open a bankruptcy estate.   If you had less than $1,000 frozen, the Chapter 7 bankruptcy trustee may be more likely to just let you keep the funds.

In Chapter 13 cases, many times the bankruptcy trustee is not interested in any frozen amount unless it is very large.   Because you are already planning on paying back your creditors through Chapter 13, the trustee may not be as interested in your bank account status at the time the case was filed.   Usually, only large bank account balances cause further inquiry in Chapter 13 cases that may result in additional turnover of funds.      Therefore, it is very possible (if the frozen funds are not excessive) that you can keep the frozen funds after they are released to you.  Whether it is a Chapter 7 or Chapter 13 case, make sure to follow all the instructions of your attorney and the trustee.