Does my company’s creditor have the right to freeze my personal bank account? For a business owner, that is usually the first question, and the honest answer is that it can happen. When a creditor obtains a valid judgment against a debtor, that creditor can take action to freeze assets owned by that debtor. It doesn’t matter whether the debtor is holding those assets in person but merely whether the debtor has an interest in them. But a creditor’s ability to freeze a bank account depends on whom the judgment is against.
If only your company was named, the judgment creditor can serve a restraint notice or levy on the company’s accounts and on any safe deposit box your company holds at the bank. But if you were named on the judgment, then the judgment creditor can serve notice and freeze your personal accounts and any safe deposit box you hold personally at the bank. In New York, this is typically done by the lawyer’s office, without court approval.
Freeze a Debtor’s Account
When a creditor’s attorney wants to freeze a debtor’s account, there are two methods. The first is to serve what is called a restraining notice on the bank or on anyone else who holds any of the debtor’s assets. The second is to deliver a property execution to a city marshal or sheriff, who levies the bank to satisfy the judgment.
The bank has been served with a restraining notice or a legal order called a levy. What happens? The bank has to block access to your bank account for up to twice the value of the judgment. It also has to seal your safe-deposit box and lock it up. The restriction is good for a year, and may be renewed.
Once the freeze is on, each new deposit gets added to that frozen balance until it reaches twice the judgment amount. If you don’t have enough money beyond that to cover the check, it will bounce for insufficient funds. The same is true for operating accounts, payroll accounts and checking accounts. For a company that runs payroll out of its accounts, that is where a freeze starts to do real damage.
What if the bank that held your frozen money is the same one to which you owe a loan or other debt? The bank can call the debt and make the owner pay up - by offsetting the frozen money against the outstanding balance. (The creditor who ordered the freeze does not get the money, and the account owner doesn’t get it back, either.)
Exempt Property
In New York, a judgment isn’t limited to a bank account. A creditor can get virtually any piece of your personal property - with the exception of “exempt property” - to satisfy the judgment. That includes your brokerage account, cash value of life insurance, and even the car that you own outright can be sold and used to satisfy a judgment (in part or in full). Assets that others hold for you can also be reached: funds your customers owe you, the proceeds of a merchant account, other payments due, or even collateral that someone else is holding for you.
When the bank receives a restraining notice, it will mail you an exemption notice which you have a certain number of days to fill out and return to the bank. If you do not claim an exemption, the bank will freeze the account. Any creditor who challenges the exemption you have claimed must promptly bring a motion to the court. The first $2,850 of any amount in your account is exempt for individuals and businesses. All other exemptions apply to consumer accounts only.
Get a Frozen Account Released
A freeze does not, by itself, mean that the bank will give the creditor your money. If you’re thinking about settling for less than what you owe - or about getting the account unfrozen - now is the time to find some help. The clock is ticking.
There are three ways to get a frozen account released. First, you can cut a deal with the judgment creditor and pay off all or part of the judgment. You let the bank release an agreed amount to the creditor. Then the judgment creditor’s attorney or agent will sign a conditional release, which tells the bank to cut the check and release the restraint on the account. Another way to unfreeze the account is simply to do nothing, because the marshal or the sheriff will serve the levy, take what funds are on deposit in the account and send them to the judgment creditor or the judgment creditor’s lawyer. Finally, the account holder can petition the court to have the restraint vacated. Note that the account holder and judgment debtor are not always the same person, and the request is sometimes made together with a request to vacate the judgment itself, though not always.
The length of time your frozen bank account remains in place depends on which of the three main options you elect, the tenacity of your lawyer, the bank’s legal department, and how much help you give in the process. How to unfreeze accounts is a process just like how to freeze them. It’s important to get it right the first time. If you don’t, you may lose your money or your property, and you may not get a second chance.
