Having a frozen bank account is absolutely frustrating and nerve-wracking. Freezing bank accounts is a tool that creditors often use to get the attention of those who owe them money, particularly if other forms of communication have not worked in the past. When your bank accounts are frozen, you are unable to use the money you have or transfer money that is in your account. Because of the stress that a frozen bank account can put on your finances and life, it is important to understand who can freeze your account, why someone might freeze your account, and how you can get your account unfrozen.
Not sure if closing a bank account will affect your credit score? Find out here.
Who Can Freeze My Bank Account?
Generally speaking, only people that you owe money to have the opportunity to freeze your bank accounts. Governing bodies have more power over you when it comes to recovering debts via freezing accounts as opposed to other creditors. There are three entities that could potentially freeze your bank account if you owe them money.
Your financial institution, otherwise known as your bank, can freeze your account if you are in debt to them. Banks can do this particularly easy if you have credit card debt with them. It is simple for banks to do this because credit card agreements have fine print stating that the bank may freeze your account if you are late on your minimum payments.
Certain creditors, mainly banks, have the ability to seize money from your frozen bank account without your consent known as a “right to offset”. This is only possible if your frozen bank account is with the bank that you are indebted to.
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Canada Revenue Agency (CRA) and Revenu Quebec
If you owe taxes to the Canada Revenue Agency or Revenu Quebec, they can freeze your bank account without any legal documentation. These agencies in Canada are quite reasonable when it comes to arranging payment of your tax debts, all they ask is for your communication and cooperation. Usually, these agencies will only freeze your accounts if you do not communicate with them or work with them to arrange payment. Their ideology is to force you to deal with your tax debts through frozen bank accounts only if other methods of communication do not work.
Click here to see if owing taxes to the CRA will affect your ability to buy a house.
It is also important to understand that the amount of money you owe is not the reason why they froze your bank accounts. Rather, they have likely chosen to freeze your accounts because you have refused to pay them back, have not filed your taxes for a year or longer, or are not communicating with them to reach a payment agreement.
If your bank accounts are frozen by Canada Revenue Agency or Revenu Quebec, be sure to respond quickly. If you ignore them at this stage, they may exercise their ability to seize your assets, put a lien on your home, or issue a wage garnishment.
It is possible for any other creditor to try to obtain a judgment against you in court. If the creditor does obtain a judgment against you because of debts you owe, they can use it to freeze your bank account. A creditor can do this for any type of debt including credit card debt, bank loans, and even payday loans.
Keep in mind that this is a complicated and uncommon occurrence as it is an extreme course of action. That being said, it can happen, particularly if a creditor has tried to recover from you in the past without any success.
Why Was My Bank Account Frozen?
The only reason a creditor or governing body would freeze your bank account is because you owe them money and haven’t been responding to their other attempts to recover the debt. With banks, missing credit card payments, mortgage payments, or any other debt could result in your bank account being frozen. The revenue agencies in Canada can freeze your bank accounts if you owe taxes to them. Finally, any other creditor that you are indebted to can file for a judgment against you to freeze your bank accounts.
Here’s what to do if you’re falling behind on credit card payments.
Often, creditors won’t freeze your bank accounts unless they’ve tried everything else and are desperate for payment. Before a creditor decides to freeze a bank account, they likely have given you a written notice, called you and given other indicators that you owe them and they want payment. If this is the case, you shouldn’t be surprised that the creditor froze your bank account. It is good to try to work with the creditor to reach an agreement, as opposed to ignoring them, to avoid having your account frozen.
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How To Get My Bank Account Unfrozen?
So, your bank accounts have been frozen, now what? The very first thing you should do is determine who froze your bank account. Most creditors will freeze your bank account to get your attention because other forms of communication have not worked. Consider lenders that have been trying to collect a debt from you, they are most likely the entity responsible for freezing your bank account.
There is no clear window of time whereby you can expect to have your bank account unfrozen. Each situation will vary depending on the creditors and amount of debt, although, ignoring the problem will only slow down the process. In addition, if you do not respond to a frozen bank account, the financial consequences could become more severe.
Not sure if you should answer a collection call? Read this article to know.
Open Another Account
Having your bank account frozen can lead to more challenges with your finances as it becomes difficult to pay your daily expenses. To avoid further financial problems as much as possible, open a new bank account with another financial institution. Note that, in general, banks cannot deny you to opening a bank account, so long as you don’t owe them money. Be sure to inform your employer of your new bank account, if you receive your pay cheque via direct deposit, otherwise, your pay cheque will be deposited into your frozen account.
This page will teach you how to get a bank account for cheap or free in Canada.
Reach Out to Creditors
Obviously, when a creditor freezes your bank account they are trying to get your attention. It is up to you to reach out to the creditor and try to reach an agreement about payment. In general, if you contact the creditor you owe, they will unfreeze your accounts once you enter a contract agreeing to the repayment of your debt.
Canada Revenue Agency and Revenu Quebec are lenient about payment options and will unfreeze your accounts so long as you contact them and work with them to pay off your tax debt. Usually, these agencies will arrange a very reasonable monthly amount for you to pay.
Click here to learn if owing taxes to the CRA will impact your credit score.
Consumer Proposal or Bankruptcy
If your debt is too much to manage on your own, consider talking to a Licensed Insolvency Trustee (LIT) about a consumer proposal or bankruptcy, as opposed to reaching out to your creditors. A consumer proposal is a legal process that results in a payment agreement with your creditors. Also a legal process, a personal bankruptcy involves assigning your debts to a LIT and, in exchange, you become debt free.
By filing a consumer proposal or bankruptcy, you obtain a stay of proceedings. This means that all legal actions against you are stopped, including frozen bank accounts. While consumer proposals and bankruptcies are not ideal options, it may be a viable option if your debt is not manageable.
Need Help With Debt?
Having your bank accounts frozen should be a wake-up call that you need to address your debt. If you’re feeling overwhelmed with your debt, frozen bank accounts or not, Loans Canada offers debt management assistance and a variety of related products to help you become debt-free.
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