A Creditor Freezes Your Account
You go to make a simple payment and the card is declined. Then you find out the business account is frozen. It’s sitting there, but nothing can move. In other words, you can’t pay your bills with that bank account. You may not even know who froze it, and when your business is hijacked from you, when you don’t know why or how this happened, it certainly causes a lot of angst and panic. But if a creditor freezes your account, you need to act fast.
With any frozen account, your first step is to determine the reason why. Is it a fraud hold because you made a large or international transaction? That’s the easy one, and a phone call with the bank can resolve the matter. No legal mess involved. But if your account has been frozen because of a business loan default or because your creditor filed a levy on your bank account, that’s the hard one. This is the freeze that stops your operations in their tracks. Different problem, different urgency.
Ask your bank for a copy of the document that was used to freeze your account. If the document is a court order, you need to find a business debt relief attorney in your state immediately. That’s because your creditor won a lawsuit against you, or got a court judgment against you (or a confession of judgment you signed) before they could get a court order to freeze your bank account. The amount of money your account has been frozen for is often double the amount that you owe. If you signed a confession or agreed judgment, your bank account got frozen as soon as the judgment was filed with the court. The creditor is now standing on the money, so the clock is ticking. A judgment isn’t the end of the story, however. When the freeze comes from debt collection, a merchant cash advance or a loan default, there are three likely ways to get the account unfrozen.
You can vacate the judgment, which means you can ask for a new trial or appeal the judgment (you’ll have to act quickly). Because the window is short, it pays to sit down with an attorney who does business debt relief so you can hear about your specific options as soon as you learn about the freeze. That matters because the legal pitfalls in dealing with creditors are usually beyond the capability of a businessperson, even a good one. An attorney in your state has the experience to fight or negotiate with aggressive creditors, merchant cash advance lenders included, and to move fast.
The second route is a temporary restraining order. A TRO is like a pause button on the judgment, and while the injunction is in place, you can use the frozen assets to pay the debt or negotiate a repayment agreement on your terms.
Or you can file for business bankruptcy. When you file, all collection efforts and lawsuits are halted for sure, and bank accounts unfreeze. That gives you and your attorney the time to work out a plan for moving forward.
Limited Access
While the account is frozen, you keep limited access to it. You can still deposit money in the checking account, but it just gets frozen too. And you can still check the balance and transaction history online. What you cannot do is make any kind of withdrawal. The bank won’t pay any checks, so outstanding checks and payments will bounce. And if you wrote a check and it bounces because the account is frozen, you could potentially be charged a penalty fee for bouncing a check.
How long it lasts depends on why it happened. A suspicious-activity freeze ends with the phone call. When a creditor is behind it, it’s likely that your bank account will be frozen for 30 days, and then the bank will send the money to the creditor.
Getting a New Bank Account Won’t Help for Long
Many owners think about moving deposits to a different bank. Getting a new bank account won’t help for long because your creditor can find out about the new account through post-judgment discovery or your credit report. Once a creditor can freeze one account, it serves post-judgment discovery on the frozen bank. They get confidential stuff from the bank (under the law), which reveals your assets, personal financial statements, your other accounts, and bank statements. Those statements can reveal your customer lists and the sources of your income. Most creditors also take a credit report, which will disclose any new banking relationships. When the creditor knows where you bank, it freezes those accounts too. So that’s why opening new accounts just delays it.
A frozen account does serious damage to any business, and the creditor is already moving. You can fight it, but you have to act fast.
