Debt Newsletter

How Long Does It Take To Unfreeze a Bank Account?

Has your bank unexpectedly frozen your bank account? Frozen money can completely disrupt your finances. When this occurs, you may ask, “How long does it take to unfreeze a bank account?” Learn why financial institutions initiate a freeze and how you can regain control of your account.

Why Are Bank Accounts Frozen?

Bank accounts can be frozen by consumers or by the bank. If you lost your debit card or want to prevent transactions temporarily, you can request a freeze. You can stop this type of freeze anytime by logging into your account via a computer or mobile app.  

A bank-initiated freeze can occur without the account holder’s permission. A freeze typically occurs due to suspicious activity or a court judgment from debt collectors. A creditor typically hires a debt collector to recoup the outstanding debt. The bank has to issue a notice before initiating a freeze. In addition, creditors and debt collectors cannot freeze an account immediately without first obtaining a court judgment. 

Financial institutions must file a suspicious activity report (SAR) when there is suspicious activity on a bank account. The requirement of reporting activity to the US Treasury began in 1992. Bank employees raise alerts for potential money laundering, terrorism funding, criminal activity, and political corruption. 

Suppose a bank account displays large cash transactions that are out of the ordinary. In that case, the financial institution will file a currency transaction report (CRT). A CRT can result in a SAR filing if the anti-money laundering staff flag suspicious activity. 

What Are the Restrictions on a Frozen Bank Account?

If your bank account is frozen, you cannot access your checking or savings account. You will not be permitted to withdraw money using a debit card or electronic transfer. You may still be allowed to deposit money into your accounts, but this may not be an ideal option. 

Any money you deposit into a frozen account will become frozen and inaccessible. If you receive income through direct deposits, you need to stop those automatic payments, so you have access to your employment wages. 

How Long Does It Take To Fix a Frozen Bank Account? 

You may want to fix the situation quickly if you have a frozen account. The good news is that there are several ways an account holder can unfreeze a bank account. However, depending on the reason for the freeze, you may have to wait an extended period. 

Fix a Freeze Due To Suspicious Activity

A computer-generated alert of unusual activity may result in a frozen bank account. Suspicious activity can involve any transactions that appear unusual, such as a large deposit from a new source. 

In the event your bank freezes a bank account, you can call or visit a local branch to explain the recent activity. Depending on your bank, you may have to make an in-person visit to confirm your identity if the bank suspects fraudulent activity. Your bank account will be unfrozen immediately if your financial institution is satisfied with your explanation.

Fix a Freeze Due To Unpaid Debts

If you have unpaid debts to a creditor or debt collector, you may face a lawsuit. It would be best if you appeared in court. You risk losing by default if you do not appear for a court summons. 

When you appear in court, the creditor will attempt to convince the judge that you willingly signed a loan agreement and that they are entitled to a money judgment. A judgment is a document issued by a court that states the creditor won a lawsuit and is entitled to a specific monetary amount. If a creditor gets a money judgment against you, they have the authority to freeze your bank account.  

You will likely not receive an advance notice of a frozen account initiated by a creditor. Although a bank must tell you that a court issued an order to freeze your account, it may be too late to access your money by that point. Generally, a bank account remains frozen until you pay the debt or file a motion to vacate. 

A motion to vacate is a specific request to a court to withdraw the judgment against you. You must file a motion to vacate within a reasonable timeframe after a court issues a judgment and provide a valid legal reason. An account holder with a frozen account typically has thirty days to one year from the date of judgment to file a motion to vacate. 

You can expect a court to grant a motion to vacate when you did not receive proper service of process. For example, if you did not receive the required notice of a lawsuit or a copy of the legal documents involved. 

How To Prevent a Future Bank Account Freeze? 

A frozen account qualifies as a financial emergency. Having limited or no access to your money can completely disrupt your life and cause unnecessary stress. However, there are ways to prevent a future bank account freeze. 

Deal With Debt Collectors 

Has a debt collector contacted you? Perhaps you have an unpaid medical bill or are still struggling to get rid of zombie debt. The best course of action to prevent frozen finances is to deal with debt collectors directly. But how can you deal with debt collectors when you can’t pay

Ensure the debt amount you owe is accurate and that the debt collector is legitimate. If you do owe money to a debt collection agency, you can contact them and start a payment plan. You can use an alternative payment option if the agency does not offer payment plans. Apply for bad credit monthly installment loans to easily manage to pay off a large debt over time. You can also try taking up a side job, such as dog walking, to boost your income temporarily. 

Avoid Writing Bad Checks

A bad check is a check that bounces due to insufficient funds in a personal or business account. One bad check will result in a non-sufficient funds fee (NSF), but multiple bad checks will result in fines and a frozen account. Keep track of your spending to ensure you have enough money to cover a cashed check. 

Limit Cash Deposits 

The Financial Crimes Enforcement Network (FinCEN) requires banks to file a SAR (Suspicious Activity Report) if a cash deposit exceeds $10,000. Suppose you win the lottery or claim a lump sum from an inheritance. It is a good idea to inform your bank before initiating the deposit to prevent an unexpected freeze. 

Use Direct Deposit for Government Assistance Funds

Certain types of funds, such as government assistance, are exempt from debt collection. It’s ideal to receive direct deposit for Social Security benefits, disability benefits, etc. If you receive a garnishment order, any government benefits deposited within two months prior cannot be frozen. Having your benefits deposited directly to your bank account ensures you have access to two months worth of benefits. 

References:
What’s Suspicious? Here’s How Banks Apply the Smell Test
Frozen Bank Accounts
Motion to Vacate Judgment