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How to Unfreeze a Bank Account Frozen By A Creditor

Understand Why Your Bank Account Is Frozen:

The creditor sued you for a debt in court and won either because you owed the debt or you did not show up in court (also known as a “Default Judgment”).

If The Account Was Frozen Because Of A Default Judgment, Decide Whether To Get It Unfrozen By “Vacating” The Judgment:

Vacating the judgment wipes out the ruling that you owe the money and unfreezes your bank account regardless of whether or not the contents in the account are exempt from debt collection. If you do not think you owe the debt, and you had a good reason for not appearing at the earlier court date (you did not know about it, you were sick, you did not understand the consequences, etc.) you should file an “Order To Show Cause To Vacate A Default Judgment”. Click here to read our fact sheet on how to do that.

What If You Cannot Vacate The Judgment Because You Owe The Debt, But Your Bank Account Contains Exempt Income Such As Social Security, SSI, or a Pension?

You still can get your bank account unfrozen if it contains money exempt from debt collection. Examples of exempt money includes Social Security, SSI, Veterans, Unemployment, Child Support, Private Pension and 90% of wages deposited in the last 60 days.

The Quick But Uncertain Route To Unfreeze Your Bank Account:

If your bank account contains only exempt money, the quickest way (about ten days) to get it unfrozen is to call the creditor’s lawyer (the person who placed the freeze on the account.) Your bank can give you the creditor’s lawyer’s number. Explain that your only income is exempt, and fax the lawyer your last three bank statements with an award letter from the agency (such as Social Security or your pension) indicating how much you receive monthly. If there is little money in the bank account, the creditor will probably unfreeze the account. If the creditor does not quickly unfreeze the account, or conditions the release of the bank account on your paying something towards the debt , you should immediately file an “Order To Show Cause” to lift a restraint. (see below.)

The Certain (But Slower) Route To Unfreezing Your Bank Account: Go To Court And File An “Order to Show Cause” To Lift A Restraint.

This takes two to three weeks.

Step One: Figure out which court to go to and under what index number to file papers. (For most residents of Brooklyn, you go to the Civil Court at 141 Livingston Street, 9th floor.) Your bank and the creditor’s lawyer have this information.

Step Two: Get papers, called an “Order To Show Cause” to lift a restraint from the clerk of the court and then complete and file them with the court clerk. To do this you need: the name and address of the creditor’s lawyer; the index number of the original case under which the suit was brought against you; and proof that your bank account contains only exempt money (your last two bank statements and an award letter from the income source (e.g. social security, pay stubs, a pension).

The clerk of the court will then help you fill out the form. Be prepared to attach the bank statements and award letter. Once it is completed, it needs to be approved by a judge. If the judge approves it, a date will be given for you and the creditor’s lawyer to return to court. You will then have to serve the “Order To Show Cause” to lift a restraint upon the creditor’s lawyer so he or she knows about the court date. The court will tell you how to serve it (usually by mail with some proof given by the post office.)

Step Three: When you return to court on the hearing date, you will still need to prove that your bank account contains exempt money. To do this, bring your three most recent bank statements and a “transaction history” of your bank account for the last 30 days (your bank can give you this). When you are waiting for the judge, the creditor’s lawyer may try to negotiate a settlement with you. For example, the creditor may offer to release the bank account if you agree to pay $100 or $50 a month. If your only income is exempt from debt collection, you do not have to agree to this.

The fact that a cousin or child may be willing to loan you money to help pay the debt is not a good reason to enter into such a payment plan if your only income is exempt. Nor is giving up some of the exempt money each month. If in doubt about what to do, tell the lawyer you want all discussions to occur in front of the judge. Eventually, you will see the judge and be able to present your case. The judge will not force you to pay any exempt money to the creditor.

What If My Bank Account Contains A Mixture Of Social Security (Or Other Exempt Payments ) And Non-Exempt Moneys? Go To Court And File An “Order To Show Cause” To Lift A Restraint:

Most money in a bank account is not exempt from debt collection, which means the creditor can take it. For example cash gifts, tax refunds, rebate checks for consumer products, loans, and 10% of your wages can be taken to pay for a debt. However, a creditor cannot take all your money in your account just because the account has a mixture of exempt and non-exempt deposits. Rather, you are entitled to a “conditional release” whereby the creditor gets the non-exempt money, and you get your exempt money. To get the exempt money back through a conditional release, you will have to go to court and file an order to show cause to release exempt money.

Bear in mind that if you spend most of your money each month, it is quite likely that your last non-exempt deposit was withdrawn before your bank account was frozen. This is because New York, (like most states), follows the “first in, first out” method of accounting.

80 NY Jur NEGOTIABLE INSTRUMENTS AND OTHER COMMERCIAL PAPER § 243; I-T-E Imperial Corporation-Empire Div. v. Bankers Trust Co., 73 A.D.2d 861 (1st Dep’t 1980), aff’d, 51 N.Y.2d 811 ( New York 1980)

A way to understand this concept is to think of your bank account as a vertical pipe. Deposited money is placed in the top of the pipe while withdrawals are made from the bottom of the pipe. Eventually, non-exempt money moves from the top to the bottom of the pipe where it is withdrawn from the bank account.

How To Prevent A Future Freeze On Your Account: Pick The Right Bank, Switch To Direct Deposit, And Never Deposit Any Other Money Into The Account.

You can bank safely even with a judgment against you if you receive your exempt payments electronically (also known as direct deposit) into an account at any of the following banks: Astoria Federal (800-278-6742), New York Community Bank Corp (516-683-4408), Chase (877-682-4273), and Banco Popular (800-377-0800).
Unlike other banks, these banks will not honor a creditor’s order to freeze your account if they can determine your account contains only direct deposit exempt payments. However, you cannot deposit any other money into the account; otherwise the account will viewed as containing non-exempt money that is freezable. To be clear: if you bank elsewhere, your exempt money will not be protected from debt collectors—only the above four banks.

This article was posted September 24, 2007