A frozen bank account is one of the remedies available to creditors to collect an outstanding debt when you are behind on your payments. If your account is frozen, you will not be able to withdraw or transfer money from that account until the freeze is lifted. This can cause further financial hardship on top of your current debt problems since it’s now hard to pay your rent, buy groceries and pay for everyday living costs.
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Who can freeze your bank account?
For most people, three common types of creditors can freeze your accounts:
- General creditors can freeze your bank account for unpaid debts including credit card debts, bank loans, financing loans and even payday loans. Your creditor must first go to court to obtain a judgement against you, which is a piece of paper confirming that you owe them money. Once they have a judgement they can apply to the court for an order to freeze your bank account or issue a wage garnishment.
- Canada Revenue Agency can freeze your accounts without obtaining a court order. If you owe the CRA tax money and have not worked out a payment plan, or filed a consumer proposal or bankruptcy, they will often freeze your bank account to force you to deal with your outstanding tax obligation.
- If you are subject to a judgement because of a lawsuit or other court procedures, these creditors can also pursue payment by freezing your bank account.
In addition to having your account frozen, certain creditors can also seize money from your account through something called a ‘right of offset’. If you owe money to say Bank A, and you have an account at Bank A, then this bank can take the payment out of your bank account to offset any overdue payments without your consent. While you can continue to use your bank account, any new money you put in is also subject to this right of seizure.
How to clear a frozen bank account
Creditors, including the CRA, do not act to freeze your bank account until after they have sent repeated requests for collection. This will include polite letters, phone calls, and formal legal notices.
Your first line of defense if you are behind on your payments is to work with your creditors to come to some form of repayment program or talk with a Licensed Insolvency Trustee about filing a consumer proposal or bankruptcy.
While your account is frozen, we recommend you open an account at another bank. If your paycheque is electronically deposited, notify your employer right away to change your account.
Next, you may want to consider filing a consumer proposal or bankruptcy if you are unable to pay the underlying debt on your own. A Licensed Insolvency Trustee has the tools to clear a frozen bank account. When you file a consumer proposal or bankruptcy, you are granted a stay of proceedings. This stops all legal actions including things like a wage garnishment or frozen bank account.
Other common questions
Can creditors or debt collectors see your bank account balance? With one exception, no debt collectors can ask a bank or financial institution how much money you have in your account. If, however you bank at the same bank as you owe money, then yes they will be able to cross-reference and know there are funds they can seize through the right of offset.
Can payday lenders freeze my bank account? Payday lenders, like any other creditor, must first obtain a judgment before they can be granted an order to freeze your account.
Can creditors take all the money in your account? Creditors can take up to the full amount owing, which means they can take all the money in your account to satisfy the debt. They can continue to take any further funds deposited as long as the account is still frozen, and you still owe money.
Can the bank ignore an order to freeze my bank account? No. Once they receive legal notification, the bank must immediately freeze your account, and remit any required amount to your creditor, or they will face legal penalties. They can only stop when the freeze is lifted by your creditor or because they received a notice that you filed a bankruptcy or proposal.