Protecting Your Bank Account When Sued: Vital Tips and Strategies

Today’s podcast episode focuses on threats from creditors of freezing bank accounts. This episode focuses on essential steps you can take to protect your assets when being sued by a creditor, potentially avoiding or delaying the need for a bankruptcy filing.

Below is a summary of the critical issues discussed.

By Alexander Hernandez, J.D., Professor, and Author of Consumer Bankruptcy Law (Routledge).

Updated on November 8, 2025.

Listen: The Professor’s Audio Briefing.

The Cost of Ignoring a Lawsuit: Default Judgment

The single biggest mistake clients make is ignoring the lawsuit. This is a massive error.

A legal proceeding doesn’t stop just because you don’t cooperate. If you ignore the summons, the creditor’s attorney will secure a default judgment against you, and you will automatically owe the total amount claimed.

Once a judgment is entered, the creditor moves from suing you to collecting from you.

Creditor Collection Tools

Creditors have powerful tools in their arsenal to collect on that judgment:

• Wage Garnishments;
• Property Liens;
• Bank Account Freezes.

A creditor can freeze the funds in your bank account immediately upon obtaining a judgment. This happens regardless of when you get paid or what bills are due. The fact that your rent or mortgage payment is due in three days does not matter to the creditor or the court issuing the order. When funds used for essential household bills are suddenly inaccessible, it creates an instant financial crisis.

What Can You Do to Protect Your Bank Account?

If you are facing a judgment or a lawsuit, here are strategies to buy you time and protect your cash flow:

1. The Immediate (and Temporary) Solution: Bankruptcy

Filing for bankruptcy, whether Chapter 7 or Chapter 13 bankruptcy, triggers the automatic stay. The automatic stay is a powerful injunction that immediately stops most lawsuits, including wage garnishments, and prevents creditors from freezing or collecting from bank accounts.

2. The Preemptive Strategy: Opening a New Account

If bankruptcy is not an immediate option, a practical step is to open a new bank account and direct future deposits (paychecks, etc.) there. Since the creditor only has information on the old account used during discovery or the suit, opening a new, separate account can buy valuable, much-needed time before the creditor locates the new funds.

3. Protecting Exempt Funds: Be Careful with Mixed Accounts

This is a complicated area where many clients make mistakes. Certain types of income, like Social Security benefits, are generally protected (exempt) from creditors.

The Danger of Commingling Funds:

Once exempt Social Security funds are mixed (or “commingled”) with non-exempt income (like a spouse’s salary, or funds from a side job), the entire account can be at risk of being frozen.

Separating these mixed funds by motions and testimony is extremely complicated, and a prompt court hearing is unlikely to be granted. In the meantime, the bank account remains frozen, and your bills keep coming.

The Professor’s Takeaway: The time to act is before the judgment is entered. Ignoring a lawsuit is the most expensive mistake you can make. So at a minimum, a response should be filed to the lawsuit while you review your strategy with your attorney.

Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. Paralegals and students who are buying single copies can do so via Amazon Books. To access my YouTube channel, click this link. You can also listen to my podcast on Spotify.

You can learn more about filing for bankruptcy and the bankruptcy petition via this link. Information on the bankruptcy court system, contact information for trustees, and your state’s exemptions can be found here. The federal bankruptcy exemptions are listed here. The latest version of the 341 Meeting of the Creditors can be found here.

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

Updated initially on March 27, 2025.