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How will I know if my account is blocked?

You should receive notice before your account is frozen—either from the entity requesting the freeze or from the bank. In most cases, you'll receive a notice from both.

investopedia.com - 3 Reasons Banks Can Freeze Your Account - Investopedia
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It can be very alarming and frustrating—not to mention embarrassing—to get a notice saying that your bank account is frozen. It's even worse when you find out after trying to use your debit card at the grocery store or while trying to get cash for a night out with friends. Bank accounts are frozen for a number of different reasons, and each reason requires specific actions to unfreeze it. The following are the top three reasons why a bank account may be frozen. Key Takeaways You can still receive deposits into frozen bank accounts, but withdrawals and transfers are not permitted. Banks may freeze bank accounts if they suspect illegal activity such as money laundering, terrorist financing, or writing bad checks. Creditors can seek judgment against you which can lead a bank to freeze your account. The government can request an account freeze for any unpaid taxes or student loans. Check with your bank or an attorney on how to lift the freeze.

What Is a Frozen Account?

It can be a nasty surprise to find out that your checking account is frozen. When a bank freezes your account, it means there may be something wrong with your account or that someone has a judgment against you to collect on an unpaid debt. An account freeze essentially means the bank suspends you from conducting certain transactions. You can still access your account, but there are limits to what you can do. You can still monitor your account and can receive deposits including your paycheck. But the freeze stops any withdrawals or transfers from going through. So whatever is deposited into the account during this time stays put. This includes any preauthorized payments you may have scheduled to go through your checking account. So if you have a rent or mortgage payment, a car loan payment, or a monthly charge for your gym membership, there's a good chance they won't go through. Preauthorized payments scheduled from your account will bounce when your account is frozen.

Suspicious or Illegal Activity

Banks have the authority and discretion to freeze accounts if they suspect account holders are conducting illegal activities. Banking regulations became stricter after events like the September 11 terrorist attacks in order to crack down on criminal enterprises that use financial institutions to conduct their business. Banks routinely monitor accounts for suspicious activity like money laundering, where large sums of money generated from criminal activity are deposited into bank accounts and moved around to make them seem as though they are from a legitimate source. Suspected terrorist financing is also another reason why banks often freeze accounts. Your bank may also freeze your account if you write and cash bad checks. You may find it's okay to try to cash a check you've written even if you don't have enough money in your account. After all, it may take a few days for the check to clear, right? But the bank doesn't think so. Knowingly writing checks on an account that doesn't have enough money—and doing so regularly—is actually considered fraud. In most cases, large and unusual deposits can flag your account, even if they're legitimate. So if you win big at the casino, you'll likely alert the bank when you try to deposit your windfall.

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Additionally, if your bank flags suspicious behavior you're certain you weren't responsible for, you may have been a victim of identity theft. Some of the best credit monitoring services also offer benefits like identity theft insurance and useful tools to better protect your information.

Unpaid Debts Through Creditors

If you have any unpaid debts, your creditors can get the bank to freeze your account in order to satisfy your obligations. But they must first get approval from the courts before taking this action. They do this by getting a judgment against you. This is then sent to the bank and is kept on file. For account holders who have their loan accounts at the same institution as their bank account, the lender can access your account(s) to pay the defaulted loans without filing a lawsuit or judgment. When you sign for the loan, you give the bank full access to your account—even in the event of default.

Unpaid Debts to the Government

Individuals who owe student loans or taxes to the government may also find their bank accounts frozen. The Internal Revenue Service (IRS) can issue a tax levy for any unpaid taxes. It cannot be lifted until the debt is paid in full.  The government can do a few different things for unpaid student loans including seizing your tax refund or garnishing a percentage of your paycheck each month. When your loan is in default, your federal loan lender may likely garnish wages and taxes without pursuing a judgment from the courts. In the chance that your bank account is frozen because of debt collectors or suspicious activity, your bank account should not be wiped clean of funds. Depending on the state where you live, there are limits to what type of income can be taken from your account. For example, in some states, it is illegal for creditors to withdraw Social Security benefits, child support, workers' compensation, and more. However, you need to file a claim of exemption within 10 days after your account is frozen.



What an Account Freeze Means for You

As noted above, a frozen account means you won't have access to any of your money until the situation is resolved. This means you can't take out any money and scheduled payments won't go through. And because these payments will bounce, you'll probably incur a non-sufficient funds (NSF) charge. If you have money in your account, this will deplete your balance. If not, you'll dip into a negative balance putting you into an overdraft. In this case, you'll have to pay additional fees and interest to cover the temporary shortfall. When a creditor seeks judgment against you, you can expect to take a hit on your credit report. In most cases, the judgment will stay on your credit file for seven years for unpaid debts.

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If the bank suspects you've been using the account illegally for whatever reason, it could close your account completely. This means you'll be left without any money and anywhere to put your paychecks. There's a good chance you won't be able to do any business with that bank in the future and you'll have to find another bank. But that's just one outcome. If the bank reports your account activity to authorities, you could face fines and/or prosecution.

What You Should Do

You should receive notice before your account is frozen—either from the entity requesting the freeze or from the bank. In most cases, you'll receive a notice from both. Either way, make sure to contact your bank immediately if your account is frozen to see what steps need to be taken and to make sure there's no mistake. Remember that if you ignore a frozen bank account, you can make the problem worse, causing drops in your credit score and a build-up of bank fees. If your account is frozen because of activity you know is legitimate, go to the bank with proof. If you can show that there's no reason for the freeze, the bank will probably release the suspension and grant you full access to the account again. Once your account is frozen over unpaid debts, it is crucial to get the creditor's attorney’s information from your bank immediately. You need to have a better idea of what's going on with your account and work out a payment arrangement. Consider consulting legal help. Consumer bankruptcy attorneys do not force you to pursue bankruptcy—rather, they help you understand the legal actions that creditors can take, as well as what your rights are in these situations. For debts owed to the government, there's very little you can do to get access to your account. And keep in mind, these debts don't go away even if you go bankrupt.

investopedia.com - 3 Reasons Banks Can Freeze Your Account - Investopedia
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