Avoid Bank Account Freezes: Legal Tips You Need

When a creditor has filed a lawsuit against you, do not ignore the lawsuit. There are several options and actions you must take immediately to protect yourself and your finances. Unfortunately, too many times, a debtor might ignore the lawsuit and have their bank account frozen. While Social Security income is protected, if the bank account is frozen, there are more complicated steps that have to be taken to gain access to the funds. I’ll review these issues in this blog post and accompanying YouTube video.

Updated on February 2, 2025.

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Key Points:

• Opening a new bank account can protect your bank account from creditors.
• If you ignore a lawsuit and your bank account is frozen, it could be too little too late.
• Don’t mix protected income such as Social Security income with other deposits.

When a creditor such as a credit card company sues you, they have a right to collect on any judgment the court has issued. Besides freezing your bank account, creditors can garnish your wages or place liens on your assets, such as your car or home. In this blog, we will concentrate on the issue of a creditor freezing a bank account.

Unfortunately, I’ve had many clients whose bank accounts have been frozen. Generally, it’s because they ignored the lawsuit. So, when served with the demand for a lawsuit, the first step is to consult with a local attorney immediately.

What the Creditors Already Know

Creditors already know your bank account information since they have received payments from you before. But if you open another account, they would only have that information if the account is open in the same bank and the creditor gets a general court order regarding the freezing of bank accounts. Typically, the court orders are related to a specific account.

But why run the risk? Open a new bank account with a different bank.

Having Your Bank Account Frozen and There’s Household Bills to Pay

Imagine your bank account is frozen on Wednesday, and you are getting paid that Friday. Even worse, that paycheck will be used to pay the rent or the mortgage. Now what?

Unfortunately, not much can be done in a limited amount of time. If bankruptcy is filed, that doesn’t release the funds—the same result for the garnishment if bankruptcy is filed after the fact.

• Are You Judgment Proof?

However, with a lawsuit pending, sometimes the best defense is to go old school. Yes, when direct deposit did not exist, employees were paid with a check. I am not saying that this is something to be excited about, but if it prevents your bank account from being frozen, it’s a quick solution, especially if other banks aren’t nearby. Unfortunately, this isn’t always possible with every employer.

Social Security Income and Lawsuits

If you earn Social Security income, your wages are protected from garnishment, sort of. The problem is when those funds are mixed up with non-protected income such as a part-time job or side hustle.

When the bank receives a court order to freeze a bank account, it will comply with the court order if the bank can easily confirm that the funds are not protected.

However, if the bank account only receives deposits for Social Security income, the bank can easily verify that the monthly deposits are from the Department of Treasury. The bank will notify the creditor of the status of those funds and reject the court order to freeze that account.

For example, every month, Social Security income of $1,000 is deposited into the bank account, and there are no other deposits. The bank would reject freezing that account because there is no commingling of funds. However, if the Social Security funds are deposited every month with other income, then the entire account will be frozen.

Now comes the hard part of getting a timely court hearing since bills are due and trying to trace and prove which funds are protected.

Joint Checking Accounts

The same applies to joint checking accounts as with Social Security. If your spouse is depositing their paycheck into a joint account, the bank will not try to figure out which amount belongs to whom. Proving what funds are protected versus not will be challenging in court, too. Therefore, the simplest way to avoid this issue is to have separate accounts.

• Filing for Bankruptcy? Make Sure to Avoid These Mistakes!

I already know what you’re thinking when it comes to separate accounts. Because there are separate accounts, does that mean that in case of a divorce, the funds in that account only belong to that spouse? The answer to that is simply no.

What a marital asset is in divorce court is a separate issue from bankruptcy law. So, even if an account is in one spouse’s name, that does not necessarily mean there is no right to that account in case of a divorce.

To Summarize:

• If you can’t file for bankruptcy before the garnishment order or the freezing of your bank account, open a new account with another bank.
• Make sure not to mix protected income with other income, including your spouse’s income.

Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. For paralegals and students buying single copies, you can do so via Amazon books. To access my YouTube channel, click this link.

Need to look for prior blog posts or other categories? Click the links below or use the search feature at the top of the page:

• Bankruptcy
• Your Wallet

Please note the information on this site does not constitute legal advice and should be considered for informational purposes only.