What to Do If Your Bank Account Is Frozen or Restrained

In New York, where judgment enforcement is liberal, judgment creditors can restrain or freeze assets through a simple process. Most of the time, a bank account can be frozen through an attorney’s office without court approval.

A creditor who holds a valid New York judgment can freeze or restrain assets “owned” by the judgment debtor. It does not matter whether the judgment debtor is in possession of the actual asset as long as they have an interest in it. It is for this reason an attorney can serve a restraining notice on a bank or others who maintain assets the creditor seeks to restrain.

Alternatively, an attorney for the judgment creditor can issue a property execution to a city marshal or sheriff asking them to levy the bank or other party holding the asset they wish to restrain or freeze to satisfy a judgment.

Freezing and Restraining Bank Accounts

Once a bank or other asset holder receives a restraining notice or levy, they are required to hold the asset and freeze up to twice the amount of the judgment. If the judgment debtor maintains a safe deposit box at the financial institution, the box will be sealed as well. The restraint lasts up to one year and can be extended.

Some types of “property” are exempt from execution for judgment debtors. For both consumers and commercial judgment debtors alike, the first $2,850.00 in an account is exempt. The other exemptions apply to consumers.

In New York, judgment creditors can do more than just freeze bank accounts. Other assets “belonging” to a judgment debtor can be restrained as well. Except for exempt property, a judgment creditor can restrain almost all personal property belonging to a judgment debtor such as a brokerage account or the cash value of a life insurance policy. A vehicle owned outright can be sold to satisfy part or the entire judgment.

Creditors are not limited to executing on property “held” by the judgment debtor. As a creditor, you can restrain almost any asset held by another for the benefit of a judgment debtor. The asset may be monies due and owing to the judgment debtor by a customer or a third party, merchant accounts payable to the judgment debtor, other payments owed by another to a judgment debtor, or collateral held by another.

What Happens When Your Account Is Frozen

When your account is frozen, any monies deposited in the account are added to the balance frozen by the judgment creditor until the proceeds exceed two times the amount of the judgment. If the judgment debtor does not have enough funds to cover checks over twice the amount of the judgment, checks will be returned due to unavailable or insufficient funds. This applies to operating, payroll, and checking accounts.

If the account holder took a loan or was indebted to the bank for another reason, the restraint or freeze may cause the bank to call in the loan or debt and the bank may offset any monies restrained in the account to pay the bank. Despite the fact that the judgment creditor put the freeze on the account, the monies will not be available to the judgment debtor or that judgment creditor. The bank may retain the proceeds.

When a bank receives a restraining notice, an exemption notice goes out to the account holder. The account holder has a certain number of days to complete the form and return it to the bank for the funds to be considered exempt from execution. Generally, if the account holder fails to claim the funds as exempt, the bank will freeze the account. If the creditor wishes to challenge an exemption claim they must do so by motion to the court within a short time frame.

A judgment creditor’s mere attempt to freeze or restrain an account is not enough for the bank to transmit the funds to them. If you wish to settle for less than what is owed or have the account released, you must seek help immediately. Time is of the essence!

How to Unfreeze Your Bank Account

If you have a frozen bank account there are three ways you can unfreeze it:

  1. Make a deal: The account holder can make a deal with the judgment creditor to satisfy the judgment in whole or part. As part of the deal, the bank account holder can allow the bank to issue a specific amount to the judgment creditor. In exchange, the creditor’s attorney or agent can issue a conditional release authorizing the bank to issue a check and release the account from the restraint.
  2. Do nothing: The marshal or sheriff serves a levy and picks up whatever is available to remit to the judgment creditor, their attorney, or their agent.
  3. Try to vacate the restraint: The account holder and/or judgment debtor (not always the same person) can ask the court to remove the restraint or freeze. This request is sometimes made in conjunction with a request to vacate the underlying judgment but not always.

How Long Does It Take for a Frozen Account to be Released?

The length of time needed to release a frozen bank account will be based on which of the three alternatives you chose, and depends greatly on the persistence of your counsel, the bank’s legal department, and your cooperation.

As with freezing the account, unfreezing an account or asset is a process. A process that, if not done correctly, can cost the account holder money or property. It is imperative you get it right the first time as it’s unlikely you’ll get a second chance.

A lawyer proficient in the debt collection process knows what needs to be included to vacate the restraint and underlying judgment. At Frank, Frank, Goldstein and Nager, we offer our clients a streamlined approach based on the specific facts and circumstances of their situation. We can advise you as to the probability of success based upon the facts of the situation. Contact us for a free consultation.