How to Avoid a Frozen Bank Account

Last Updated: March 25, 2025

Strategies and Insights for Secure Banking

Once your bank account is frozen, you have no access to your personal funds. Any checks you write on the bank account will bounce and you will be charged NSF fees, you can not withdraw money and you can not make transfers out. You can make deposits into that bank account, but you won't be able to access the money as it now belongs to the judgment creditor.

It usually takes one to two weeks after a judgment to garnish a bank account. You should receive written notice that your bank account is being garnished, what you can do to lift the garnishment, any deadlines to object or challenge the garnishment, and other important information. If you, the judgment debtor, wish to challenge the garnishment, you need to file paperwork with the court. 

Understanding Your Rights

Freezing of bank accounts

If you've been sued for debts in court or are behind on your taxes or child support, you may suddenly find yourself unable to access your bank account. Your income could be garnished by judgment creditors and your bank account, known as a judgment debtor account, could be frozen.

Federal agencies like the IRS or the Department of Education and some state agencies such as departments of family services are not required to take you to court first.

However, they must send you notice that they are going to garnish or levy your bank account. Debt collectors and creditors can sue you in court and if they win, they can freeze your bank account​.

Exempt funds

Some exempt funds that cannot be seized past a certain amount or undergo creditor garnishment. These include Government benefits like Social Security, Unemployment Benefits, Retirement Benefits, Child support payments / Spousal Payments, Federal benefits like Veterans’ Benefits, Life Insurance Benefits, and Disability Benefits.

If you have funds that cannot be garnished, you can file for exemptions in court. You'll need to request a court hearing and file any paperwork to prove that the funds should be exempt​.

Can Bankruptcy Help With Frozen Accounts?

Filing for bankruptcy may be an option if you are unable to pay back your debts and your accounts keep getting frozen. Bankruptcy stops all collection actions against you, including freezing accounts.

There are two main types of personal bankruptcy:

• Chapter 7 bankruptcy completely wipes out eligible debt like credit cards, personal loans, and medical bills. Any assets above exemption limits may be sold to pay creditors.
• Chapter 13 bankruptcy sets up a 3-5-year repayment plan to pay back a portion of your debt. You get to keep your assets.

Talk to a bankruptcy attorney to see if either Chapter 7 or Chapter 13 bankruptcy could help resolve your debt issues and prevent future account freezes.

How to avoid frozen bank accounts

The best way to avoid a frozen bank account is to take care of your financial business before you end up in court. If your credit card debt has gotten out of hand or you are missing bill payments on your consumer debt, you may be getting letters from creditors, do what you can to resolve the issue. This could include looking for debt relief like debt settlement or debt consolidation.

How to Dispute an Account Freeze

If you believe your account was frozen in error, you have the right to dispute it. 

Here are the steps to take:

• Contact the bank immediately and ask why the freeze occurred. Request evidence and documentation.
• Review the freeze notice carefully for any inaccuracies. Double-check the creditor name, account numbers, amounts owed, etc.
• File paperwork with the court listed on the freeze notice contesting the freeze if errors are found or you have proof the funds are exempt.
• Consult a lawyer who can review the order and help draft the right forms to submit to the court. Time limits apply so act fast.
• Provide evidence like bank statements and receipts showing the funds are exempt.
• Request a court hearing to argue against the freeze if needed.

With the right evidence and legal help, you may be able to successfully dispute an improper account freeze.

How to Prevent Future Account Freezes

Here are proactive tips to help avoid account freezes down the road:

• Set up payment plans for outstanding debts. Stay current on payments.
• Look into debt relief options like debt consolidation loans or settlement if you are struggling with high balances.
• Maintain detailed financial records in case you need to prove funds are exempt.
• Open a separate account just for exempt deposits like Social Security.
• Consult a credit counselor for help creating a budget and improving your credit.
• Build an emergency fund equal to 3-6 months of expenses as a cushion.
• Review bank statements regularly for any suspicious activity. Report unauthorized activity right away.
• Talk to a lawyer immediately if you receive a court summons about debt. Don't ignore it.
• Consider incorporating your business to separate business and personal assets.

Proactively monitoring your finances, recordkeeping, and seeking help early can reduce the risk of surprise account freezes in the future.

Debt Collectors

If your credit card debt has gotten out of hand or you are missing bill payments on your consumer debt, you may be getting letters from creditors, do what you can to resolve the issue.

This could include looking for debt relief like debt settlement or debt consolidation.

Before a bank account levy occurs, a debt collector must send either a summons or a demand letter before the debt collector sues.

A summons means you are being sued in court. To understand the difference and what to do, check out this blog on the Difference Between a Summons and a Demand Letter. 

Our blog is full of articles on how to get out of debt and deal with debt collection. If you are getting a lot of calls from debt collection agencies, give us a call to talk about debt relief.

Tax Debt

Tax debt is a very serious issue. If you get a letter from the IRS, open it and deal with it. The IRS is a very powerful governmental agency and they do not need to take you to court to have a bank levy your bank account. While the IRS can be hard to work with, they can help you set up payment plans.

Ignoring letters from the IRS can lead to other issues such as your passport being seized so that you cannot leave the country.

Talk to a tax lawyer or CPA for guidance.

Do not respond to phone calls, texts or emails from the IRS or state tax collector. They will not call or email you! A call or an email is a scam.

Can Child Support Freeze Your Bank Account?

Yes, child support enforcement agencies can freeze your bank account without obtaining a court judgment first. Unlike most creditors, state child support agencies have special authority to directly levy bank accounts when child support payments are delinquent.

How Child Support Bank Account Freezes Work

1. Enforcement process: When you fall behind on child support payments, the state's child support enforcement agency will typically:

• Send multiple notices about the delinquency
• Attempt to establish a payment plan
• Issue an administrative order to freeze and seize funds if payments remain delinquent

1. No court judgment required: Unlike regular creditors, child support enforcement agencies don't need to sue you in court first before freezing your account.
2. Bank notification process: The agency sends a financial institution a notice to freeze your account up to the amount of unpaid support.
3. Timeline: Usually, your account will remain frozen for 21 days before the funds are transferred to the child support agency. This period allows you time to contest the freeze if there's been an error.
4. Multiple accounts affected: Child support enforcement can freeze multiple accounts, including joint accounts in some states.

Warning Signs of Potential Bank Account Freezes

• Receipt of delinquency notices from your state's child support enforcement agency
• Having arrears (past-due support) accumulating
• Previous enforcement actions like wage garnishment or tax refund intercepts
• Notices of intent to enforce through administrative remedies

How to Prevent Child Support Bank Account Freezes

1. Stay current on payments: The most effective way to prevent a freeze is to make all child support payments on time.
2. Establish a payment plan: If you're falling behind, contact your child support enforcement agency proactively to arrange a payment plan.
3. Request modification: If your financial circumstances have changed significantly, file for a child support modification through your local family court.
4. Document all payments: Keep detailed records of all payments made, including dates, amounts, and confirmation numbers.
5. Respond to notices: Never ignore notices from child support enforcement agencies. Respond promptly and work with them to resolve issues.

What to Do if Your Account Is Already Frozen for Child Support

1. Contact the child support enforcement agency immediately: Explain your situation and see if a payment arrangement can be made to release some or all of the frozen funds.
2. File for a hardship exemption: Many states allow for hardship exemptions if the freeze would cause you to be unable to pay for basic necessities.
3. Verify the amount owed: Request a full accounting of what's owed to ensure the freeze amount is accurate.
4. Consult with a family law attorney: An attorney experienced in child support matters can help navigate the system and potentially negotiate a favorable resolution.

Request an administrative hearing: You typically have the right to request a hearing to dispute the freeze if you believe it's erroneous or if the funds are exempt.



Are There Funds that Can Not be Frozen?

There are some exempt funds that can not be seized past a certain amount or undergo creditor garnishment.

These include:

• Government benefits like Social Security
• Unemployment Benefits
• Retirement Benefits
• Child support payments / Spousal Payments
• Federal benefits like Veterans’ Benefits
• Life Insurance Benefits
• Disability Benefits

In order to keep all the funds safe from a judgment creditor, use a separate bank account just for these monies. If exempt funds like Social Security benefits are mixed with non exempt funds, they are not safe from garnishment. In addition, the bank must ensure that your bank account balance contains two months' worth of exempt money.

How to Claim an Exemption

If you have funds that can not be garnished, you can file for exemptions in court. You'll need to request a court hearing and file any paperwork to prove that the funds should be exempt. You should have enough money to pay living expenses. Since each state is different, contact a qualified lawyer for more information. 

The court will require that you take a means test. In a means test, you show your income and assets versus your expenses, especially related living expenses and the support of your dependents. If you do not have enough assets compared to expenses, the court will not allow your accounts to be garnished.

How to Open a Bank Account that No Creditor can Touch

There are three ways to open a bank account that no creditor can touch.

Joint account

If all the debt is in your name, open joint accounts in your and your spouse's names. If the debt is in both names, this does not work.

Exempt funds account

The second way is to open a bank account that includes all your money that is exempt like Social Security benefits. Direct deposit exempt funds into this bank account and pay bills out of that bank account. Do not transfer it to a separate bank account with non exempt funds, or it can be frozen.

Out of state accounts

The third way is to open a bank account in states with favorable laws against wage garnishment.

These states include New York, South Carolina, Maryland, North Dakota, and New Hampshire. Each of these states has a different amount of tax exempt funds, between $1,716 and $8,000.

This does not always work because state laws determine if you can open a bank account if not a resident.

ChexSystems

There is a special reporting service known as ChexSystems that banks report closed or indebted bank accounts to. If you show up on this service, a new bank will consider you a bad risk and turn you down. These reports last about five years.

To get around ChexSystems, open an online bank account as these banks don't always use ChexSystems. 

Domestic Asset Protection Trusts

An asset protection trust is a way to protect your assets from lawsuits. Generally, these are used by business owners or people in high risk professions to provide asset protection for their personal money and property. These are also safe from a judgment creditor.

These come with a lot of regulation, so talk with an attorney if you are interested in a domestic asset protection trust.

Offshore bank account and offshore trust

An offshore account or trust means that money is held in a foreign bank account. Prior to 2009, offshore accounts were often viewed as a place to launder money or evade taxes. Oversight since that date is working to clean up the offshore accounts reputation.

There are very good reasons to have an offshore bank account. These may include being paid in a foreign currency, frequent travel for business, or ownership of foreign properties.

It usually takes a fairly substantial amount of money to open an offshore bank account.

Offshore bank accounts are not generally subject to freezing. Moving money offshore can be fairly tricky and possibly illegal.

There are some tax consequences to opening a foreign bank account. Speak with a qualified tax professional before opening an off-shore bank account.

Business bank accounts

If you have a business, open a business bank account and keep your business funds completely separate from your personal accounts. As long as the debt is personal, the business account should be safe from judgment creditors.

If you have a business bank account, keep your financial records clean so you can prove to a creditor that the business accounts are not touchable.

If you have an unincorporated business, consider setting your business up as a limited liability company (LLC) and opening an llc business bank account to better document your money's provenance. Keep your llc bank account separate from your personal accounts.

Moving Large Sums of Cash

If you know you are about to have your bank account frozen, be aware that moving money out of a bank account to protect it from being frozen can be considered fraud. This is known as fraudulent conveyance. Before committing fraudulent conveyance, speak to an attorney.

Can Creditors Take My Stimulus Check?

Unfortunately, creditors can seize your stimulus checks. For more information, check out Debt Collectors Can Now Seize Your Stimulus Payment. You'll find some suggestions on how to stop the garnishment. 

FAQs

Our Conclusion

The best way to avoid a frozen bank account is to pay attention to your finances. Stay out of collections, read and respond to letters (especially summons), and pay taxes and child support. 

If you do end up with a judgment creditor, you can challenge the judgment creditor and possibly have your bank account unfrozen. Talk to a lawyer for advice on how to pursue this.

You have some options to protect your bank account from creditors.

• Turn your unincorporated business into a limited liability company and open an llc business bank account.
• Keep your business bank account separate from personal accounts.
• Open a new bank account for exempt funds such as Social Security benefits.
• Always use direct deposit for these funds and do not transfer to a non-exempt bank account.
• Contact your bank immediately if your account is frozen to understand why and request documentation.
• Gather financial records to prove exempt funds and file dispute paperwork with the court as soon as possible.
• Consult a lawyer for assistance disputing an improper freeze. They can help with court filings and hearings.
• Ask the bank about waiving fees and allowing minimum withdrawals for living expenses in the meantime.
• Prioritize secured debt and contact all creditors to discuss reduced/paused payments while frozen.
• Explore debt relief options like debt management plans if struggling with high balances.
• Open a separate account for exempt deposits and directly deposit when possible.
• Maintain detailed financial records going forward to prove deposit sources.
• Set up payment plans with creditors and stay current on all debts.
• Build emergency savings and monitor bank statements routinely for unauthorized charges.
• Consider consulting a credit counselor to improve your overall financial health long-term.

We can't guarantee that these create a bank account that no creditor can touch, but they are certainly a better bet than mixing exempt and non-exempt funds or mixing business and personal funds.

If you are struggling with overwhelming debt and want to explore your debt relief options, Pacific Debt Relief offers a free consultation to assess your financial situation. Our debt specialists can provide objective guidance relevant information and support to help find the right debt relief solution.

*Disclaimer: Pacific Debt Relief explicitly states that it is not a credit repair organization, and its program does not aim to improve individuals' credit scores. The information provided here is intended solely for educational purposes, aiding consumers in making informed decisions regarding credit and debt matters. The content does not constitute legal or financial advice. Pacific Debt Relief strongly advises individuals to seek the counsel of qualified professionals before undertaking any legal or financial actions.