Frozen Bank Account. Your Rights and What To Do Next

It’s hard enough to catch up on missed debt payments, but when a creditor freezes your bank account, you find yourself without money to pay rent, groceries and other daily living expenses. So who can freeze your bank account, when and how? I’m Doug Hoyes, a Licensed Insolvency Trustee with Hoyes, Michalos & Associates. Let’s talk about frozen bank accounts and what steps to take if this happens to you. What is a frozen bank account? A frozen bank account is one of the options creditors use to collect outstanding debts. It’s not the first action they’ll take though, they start by calling you, and sending letters, and if that doesn’t get your attention, they may freeze your bank account. And once that happens you can’t take money out of your account, or make an e-transfer, or pay your bills until the freeze is lifted. Who can freeze your bank account? Well, there are several situations where someone you own money to, a creditor, can freeze your bank account. First, you can’t just go and freeze someone’s bank account. If you owe someone money and they wanted to freeze your bank account, they can’t just call up the bank and say “hey, freeze their bank account’. The bank will only let a creditor freeze your bank account if they have a court order. So, a creditor would have to take you to court, sue you, get a judgement, and then enforce that judgement by freezing your bank account. So, that’s the first case, you lose a lawsuit, and they freeze your bank account. The second case is where you owe money to a bank and you don’t pay them, and you have a bank account with money in it at the same bank. They don’t need a court order, they may decide they don’t want you as a customer anymore, so they could freeze your account. The third case, and this is the most common case I see, is where you owe money to the Canada Revenue Agency for back taxes. If you aren’t paying, they don’t need a court order, they can issue a Requirement to Pay Notice, and send it to your bank, and when your bank gets it they freeze your bank account and send the money to CRA. This is a common CRA tactic when you haven’t filed your taxes for a few years. They find that freezing your bank account is a great way to get your attention. So, to prevent CRA from freezing your bank account, file your taxes, and if possible, pay them. Do you know about your bank’s Right of Offset?  I mentioned your bank, if you owe them money and they don’t want you as a customer, they can freeze your bank account, but they also have another power called the ‘right of offset’. If you owe money to Bank A and you also have an account at Bank A, then this bank can take the payment out of your bank account to offset any overdue payments without telling you because that’s the deal you agreed to many years ago when you set up your accounts with them. Well, you can continue to use your bank account, any new money you put in is also subject to this right of seizure. What are your next steps if your accounts have been frozen?  Your first line of defense if you are behind on your payments is to work with your creditors to come up with a repayment plan or talk with a Licensed Insolvency Trustee about filing a consumer proposal or bankruptcy. But in the meantime, if your account is frozen or might be, we recommend that you open a new bank account at a new bank where you don’t owe any money. Notify your employer to deposit your paycheck into this new account. Move any money from your old account to your new account. Don’t tell your creditors where this new account is. Transfer only bill payments you want to continue. If a creditor doesn’t know about a new bank account, they can’t take money out of it, and that ensures that you can access your money to pay for your daily living expenses. Of course, that’s a temporary solution, eventually your creditors may find out about your new bank account, so what’s a more permanent solution? Well, if you’re unable to pay your debts and you’re worried about your bank account being frozen, talk to a Licensed Insolvency Trustee about a consumer proposal or bankruptcy. If you file for either of these options, it will stop all creditor actions, including freezing your bank account. When you meet with us at Hoyes, Michalos & Associates, and our Licensed Insolvency Trustees, we’ll help you figure out what options you can take next to improve your financial situation. For more information on frozen bank accounts, visit our website at hoyes.com.

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