Living with a frozen bank account is not only challenging, but it’s also a situation that demands immediate attention. You’re cut off from your funds, unable to make withdrawals, pay bills, or have automatic debits processed. The question of why your account is frozen and how to unfreeze it becomes super important. Keep reading to understand the who, how, and why of a frozen bank account, and learn what steps you should take for debt help if your bank freezes your account.
Frozen Bank Accounts
When your bank account is frozen, it’s a serious matter. Your bank can freeze your account due to debts you owe to them, other creditors, and the Canada Revenue Agency. These entities have the power to disrupt your financial life, making it crucial to understand the reasons behind a freeze.
There are typically three reasons why your bank will freeze your account. The most common is unpaid debt. Two types of unpaid debt can result in a frozen bank account: money you owe to your bank and money you owe to other creditors. The second is that you have unpaid tax debt. Finally, the bank can freeze your account if it suspects suspicious activity.
Overdue debts
The first type of overdue debt is money you owe to the same bank with which you have credit products. Banks have a clause in their credit agreements called a “right of offset”. That means if you don’t pay them the money you owe, they have the right to take it from your account.
If your account balance isn’t enough to pay what you owe, your bank can freeze your account and take any money that’s deposited to satisfy your debt. Overdue credit cards are the most common cause of this situation. Your bank doesn’t need a court order to freeze your account if your payments are overdue because it’s in the agreement you signed.
You may not owe your bank money, but you might owe other creditors. You could have credit cards, loans, or a line of credit at different banks. Additionally, you may owe money to alternative lenders, such as payday loan companies.
If you haven’t been making your payments and haven’t made arrangements to catch up on what you owe, these lenders can get a court order to freeze your bank account. Doing so is often a last resort because of the cost involved. However, if you owe them a lot, then action may be taken.
Secured debts that haven’t been paid, such as a car loan or mortgage, can also result in a frozen bank account. Lenders will typically sell the asset that secures the loan. If they don’t get enough money from the sale, they may freeze your account to collect the remainder.
Unpaid tax debt
Some people don’t take unpaid tax debt seriously, but the Canada Revenue Agency (CRA) does. They’ll try to contact you by mail and phone to arrange a method for you to pay what you owe. If you ignore their attempts to get in touch with you, they’ll freeze your account.
The CRA has significant power to take action against taxpayers who fail to fulfill their requirement to pay. Some actions it can take include:
- Freezing your bank account without a court order.
- Withholding your tax refunds.
- Garnishing your wages.
- Placing a lien on your home.
Suspicious activity
Financial institutions monitor bank accounts for suspicious activity. If your bank suspects you are a victim of identity theft or fraud, it can freeze your bank account to protect you. On the other hand, if they suspect you’re using your account for criminal purposes, the bank can put a freeze on it.
The government can also freeze your account if it suspects that you’re using your bank account for unlawful activity, such as financial crimes or terrorism.
What to do about a frozen bank account
If your bank has frozen your bank account, there are steps you can take to resolve the situation. The first step is to open a new account with a different bank. Next, contact your creditors and/or the CRA to find out how much you owe and if you can make arrangements to pay your outstanding debts. However, if you’re struggling to meet your financial obligations, contacting a Licensed Insolvency Trustee (LIT) can provide you with debt relief options, offering hope in a challenging situation.
Open a new bank account
The first step is to open a new account at a different bank. Update all your pre-authorized deposit and debit information so that everything will be processed through your new account. Doing this will give you access to your paycheque, allow you to pay your bills and withdraw cash.
Contact your creditors
When creditors request a freeze on your bank account, it’s usually after multiple attempts to contact you about debt payments. A frozen bank account is designed to get your attention. By reaching out to your lenders or the CRA, you can take the first step towards resolving the issue. Most creditors are willing to work with you as long as you maintain open lines of communication, empowering you to take control of your financial situation.
Contact a Licensed Insolvency Trustee (LIT)
If you haven’t been making your payments on time, it may be because you aren’t able to do so. Contacting a Licensed Insolvency Trustee can help. The federal government licenses LITs to offer legally binding debt relief solutions.
A LIT can file a Consumer Proposal or Bankruptcy for you. Either one will:
- Stop all collection activity.
- Stop all legal action.
- Release your bank account once the filing is complete.
- Eliminate your debt.
A Consumer Proposal can reduce your unsecured debt by up to 80%. You’ll have one payment each month to repay the balance of what you owe. You’ll make your payment to your LIT, who will distribute it to your creditors. You have up to 60 months to complete a Consumer Proposal. You’ll be debt-free after you make your last payment. Consumer Proposals allow you to keep all your assets.
Filing for Bankruptcy is for borrowers who are facing extreme financial pressures. The process typically takes nine months. Once you complete the process, most, if not all, of your unsecured debts will be eliminated. All provinces allow you to keep some assets when you file. Your LIT will sell the remainder to pay down what you owe.
Who To Talk to About a Frozen Bank Account
Being unable to access your account to pay your expenses and bills makes life stressful and challenging. Fortunately, you don’t need to deal with this alone. Our LITs at Allan Marshall and Associates have been helping individuals eliminate their debt, recover their bank accounts, and rebuild their finances for over 30 years. Book a free consultation with us online or by calling 1-888-371-8900 to deal with your debt and get back on track. Remember, professional help is always available to support you through these difficult times.
