You need to pick up a few things on your way home so you stop at a bank machine to withdraw some cash, only the machine won’t let you make a withdrawal. You step inside and the teller informs you that your bank account has been “frozen”. What does that mean?
It usually means you owe a debt to a creditor, perhaps one that has been in collections for a while, and they have frozen your account in one of two ways:
- Most often your account is frozen by the bank you also owe money to, perhaps due to an outstanding credit card debt. Under the terms of your credit card agreement, your bank is entitled to freeze your account and collect payment.
- Other creditors can obtain a legal judgment against you and then send notice to your bank instructing them to accept deposits, but restrict withdrawals from your bank accounts. This is usually followed with a demand to seize the funds on deposit in the account and forward the money to your creditor.
A frozen bank account is one of your creditors’ tools to “get your attention” when you are in arrears with your payments.
In order to have your bank account released or unfrozen you need to do one of the following:
- Contact your creditor to convince them to release your account. This usually means negotiating a payment plan to deal with your debt.;
- File a consumer proposal; or
- File an assignment in bankruptcy
When you file for bankruptcy or file a proposal to your creditors, an automatic “Stay of Proceedings” is created. This requires your bank to release your accounts. It also stops your creditor from refreezing them, or any other accounts you may have while you remain under bankruptcy protection.
Before Your Bankruptcy
If you know you are going to file for bankruptcy and your account is, or may be frozen, you should open a new bank account at a bank where you do not owe any money. Change your automatic payroll deposit and bill payments to this account so you can continue to pay bills and buy groceries.
If there is money in your bank account after you file for bankruptcy, it is considered an asset of the estate. However in practice, if the amount is from your most recent pay and earmarked for bill payments, your bankruptcy trustee will likely allow you to use some of the money to fund essential living expenses. In certain provinces, bankruptcy exemption rules also allow you to keep a minimum amount of cash for food and fuel for a period of time.
Bankruptcy is a designed to be the final solution to financial problems – it is not something that should be done lightly or without thinking through the long term ramifications. For example, you cannot file bankruptcy to deal with one creditor only. If you file you must include all credit cards, loans, lines of credit and all other unsecured debts you may have.
If you find yourself facing a frozen bank account as a result of outstanding credit card or other debts you should contact a bankruptcy trustee so they can help you determine which solution makes the most sense for you.