UCC Lien Froze Bank Account

A UCC filing alone does not freeze your bank account. What freezes it is a restraining notice served on your bank, typically after the funder has obtained a judgment, although in some cases through pre-judgment attachment. The bank’s compliance department blocks outgoing transfers, sometimes overnight, and the first you hear about it is when a payroll ACH bounces.

Once the account is restrained, the clock is on. Payroll is missed in days. Rent and utilities bounce within a week. Vendor relationships start to break within two weeks.

How the Restraint Got There

The most common sequence: the funder filed suit, obtained a judgment (often by default), and then served a restraining notice under CPLR § 5222 (in New York) or the equivalent state procedure. The notice tells your bank that any funds in any account owned by the judgment debtor must be held pending further court action or a release.

A second variation: the funder confessed a COJ-based judgment pre-2019 and served restraints any time a debtor came up short. The 2019 New York reforms restricted out-of-state COJs, but pre-existing judgments still sit on dockets and still produce restraints. A third variation is pre-judgment attachment, available when the funder convinces a court there is a risk of asset dissipation.

What the Restraint Actually Covers

The restraint generally covers the entire balance in the named account, up to the amount of the judgment plus interest and costs. The bank does not pick and choose; it freezes the account and waits for instructions.

Critically, the restraint typically does not cover deposits made after the restraint is served, although this varies by jurisdiction. Some funders re-serve the restraint periodically to capture incoming funds. New York’s CPLR provides that a restraining notice has effect for one year and applies to property in the bank’s possession at the time of service.

The Two-Track Response

You generally need to run two tracks simultaneously: a legal track to challenge the restraint and a negotiation track to resolve the underlying obligation.

• Legal track. An independent attorney from our referral network reviews the judgment, the service of process on the original lawsuit, the restraining notice, and the bank’s compliance with the restraint. If service was defective, if the judgment is vulnerable to vacatur, if the restraint reaches funds it should not, there are motions to file.
• Negotiation track. In parallel, our senior advisors open a direct dialogue with the funder. The funder has the restraint in place because they want money, not litigation. A negotiated settlement plus a release of the restraint is often available within days.

What You Can Do Operationally in the First 24 Hours

While the legal and negotiation tracks proceed, the business has to survive. Practical operational steps:

• Notify employees about the payroll delay honestly. Most will work with you if they hear from you directly.
• Contact your largest vendors and lessors proactively. Bouncing a rent check without explanation is worse than calling to explain.
• Direct new customer payments to a different account if possible, but coordinate with counsel first to confirm the move is permissible.
• Stop autopay on the restrained account where you can. Bounced ACHs add fees and damage relationships.

The Settlement Math

In our experience, MCA judgments that produce restraints settle at 25 to 50 cents on the dollar when the merchant moves quickly and credibly. The funder weighs the certainty of a near-term settlement payment against the risk of vacatur, the cost of continued enforcement, and the possibility of a recharacterization defense that wipes the judgment out entirely.

When the merchant has cash on hand or financing access, the settlement can close within 48 to 72 hours and the restraint can come off the bank within a day of the funder confirming receipt. If the underlying judgment is vulnerable, independent counsel may recommend moving to vacate before settling, which removes the legal basis for the restraint entirely and resets the negotiation on dramatically better terms.

Call us first. Within the first hour, we can pull the judgment from the court docket, evaluate the restraint, and tell you whether the immediate priority is vacatur, settlement, or both in parallel.

Delancey Street is a business debt-relief company, not a law firm. When a matter requires legal work, we refer you to an independent attorney from our referral network; the attorney–client relationship is between you and that attorney.

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