Answers To: Can A Debt Collector Freeze My Checking Account?

Quick Take

Those in serious debt may be worried about potentially losing assets. The answer to the question “can a debt collector freeze my checking account” is indeed yes. However, this cannot automatically happen; creditors and banks must follow legal procedures.

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Overview

Many people contemplating bankruptcy do so because they don’t want to be successfully sued in court, which can lead to garnishment of wages or seizure of assets such as checking accounts, savings or certificates of deposit. But a creditor or debt collector can’t just decide one day to start taking your income or on-hand assets such as bank accounts. A representative must first pursue court action and have the company’s plans officially approved by a judge. So while the question “can a debt collector freeze my checking account?” is a legitimate concern with a “yes” answer, a collection agency can’t decide today to pursue this and get your money tomorrow.

Exemptions

Even if a judge decides your credit card company or other creditor can freeze and seize part of your bank accounts or garnish wages, some funds usually cannot be frozen under the laws of most states.

The laws do vary by state, according to Lawyers.com. But areas that even the most aggressive collectors usually can’t touch include Social Security benefits, public assistance benefits such as food stamps or cash aid and unemployment benefits. Creditors also have a particularly hard time in most states trying to take debtors’ received alimony or child support payments, general retirement payments like pension, disability benefits from an employer or personal injury-related awards. Student loan proceeds also generally cannot be demanded to repay debts.

Initial Process

If a creditor decides it is time to pursue more than telephone calls or letters to collect the debt, they must go through several steps. The first is to send a representative—often an attorney or legal assistant—to your local civil courthouse. This applies even if the creditor is in Delaware and you are in California. This is to protect your legal right to defend yourself.

Next Steps

Once the appointed representative fills out lawsuit paperwork, a sheriff’s deputy or process server will usually serve you at your home with the lawsuit. This does not mean your wages or bank account is seized. Nor does it mean you are being charged with a crime—unless a police officer shows up with an arrest warrant due to credit card or other white-collar fraud.

Going to Court

The court summons will have a court date on it. You don’t have to go, but if you choose not to a default judgment will be entered against you. At this point, the judge could eventually approve payment of the lawsuit—or debt claim plus awarded court costs—through your bank accounts or wage garnishment.

If you cannot pay, simply explain to the judge your situation. He or she may be able to help you and the creditor reach an agreement that avoids escalating the situation further.

Paying Lawsuits

In most states, only a certain percentage of your bank account can be seized or wages garnished. A judge also has to approve these means of judgment collection. Some people file bankruptcy at this point, as this automatically stops such collection activity. Your bank or employer’s accounting departments should ensure that the legal paperwork is in order before releasing funds to a collection agency or other creditor.

Impact on Credit Standing

If your checking account is seized or wages garnished, usually this will report to your credit profiles for 7 years. This is called a judgment or public record entry and even if paid in full will still remain as a negative credit report. So, the best question to ask instead of “can a debt collector freeze my checking account?” is “can I come to some sort of an agreement with an aggressive creditor before such action could legally occur?” Those in increasing financial trouble may wish to join a support group such as Debtors Anonymous and/or create and manage a more realistic personal spending plan .