Freeze | B2B Finance Glossary

What is a Freeze?

A freeze refers to an account freeze. This occurs when a bank or brokerage takes action to bar any transactions occurring in the account that has been frozen. In other words, money can be deposited into the frozen account, but it cannot leave the account; additionally, no bank or cash transfers can be made.

This also means that any open transactions are canceled, and checks that have not yet been cashed that were written from the frozen account will no longer be honored. However, it’s important to note that credit transactions will not be restricted if a debit account is frozen.

Why do Accounts Get Frozen?

Account freezes can be implemented by the account holder or a third party.

An account holder might freeze his or her account if the credit or debit card tied to the account is lost or stolen. This would prevent fraudulent activity from occurring, and ultimately, it would prevent funds from being stolen. Today, many banks and credit card providers allow account holders to freeze their accounts online if they suspect fraudulent activity. This makes it easy to quickly protect one’s funds if a credit card is lost or stolen.

Additionally, a bank or brokerage might freeze an account if the holder dies. This prevents fraudulent withdrawals and ensures that the account holder’s will is honored. Banks and brokerages might also freeze accounts if suspicious transactions or other suspicious activity occur. Freezing these accounts is meant to protect the account holder’s funds. Additionally, if an investor is engaging in fraudulent or illegal activity or is violating regulations put in place by the Securities and Exchange Commission (SEC), the bank can also freeze the investor’s investment account.

On top of that, a government or regulatory authority may freeze an account due to criminal activity, suspicious activity, liens filed against the account, or civil actions. A government authority might also freeze an account if the holder fails to pay government fines or taxes.

No matter why or how an account is frozen, it is ultimately done for the benefit of everyone involved in the situation. If an account is frozen due to a lien, the account freeze is an action that needs to be taken so that the account holder pays the debt that is owed. Additionally, if a bank freezes an account because of suspicious activity, it is doing so to protect the account holder from having funds stolen.

How Long Can an Account Be Frozen For?

Since there is no set period for unfreezing an account, if the situation is not that complicated, most accounts are unfrozen quickly if the account holder is compliant and follows the steps the bank outlines to unfreeze the account. For example, if a bank freezes an account because of suspected fraud, the account holder must confirm that no fraud occurred and that the suspicious transactions were done intentionally.

Banks can usually unfreeze accounts quickly when this takes place. Additionally, if an account holder has an overdue payment and has his or her account frozen as a result, once the payment is made and the bank is notified, the account is usually unfrozen very soon afterward. For other situations that aren’t that complicated, freezes can sometimes last between 7 and 10 days – it all depends on the nature of the situation that led to the account being frozen in the first place.

However, for more serious or complicated situations, the financial institution might request detailed information, which results in 30 days (or longer) of review before the bank decides whether or not to close the account entirely or remove the freeze on the account. If the account is frozen as a result of a court order, the account cannot be unfrozen until the court gives its approval to do so. Additionally, if an account is frozen due to an individual’s criminal activity, the account will not be unfrozen until the account holder is proven innocent.

How to Prevent Your Account From Being Frozen

There are a few surefire actions that can be taken to ensure that your account is never frozen. Here’s what you can do:

Don’t Ignore Debt Collectors

Communicating with debt collectors can ensure that your accounts remain unfrozen because, even if you aren’t able to pay the debt in full, you can try to settle the debt, set up a payment plan, or set up a date in the future that you commit to paying your debt by.

By communicating with the debt collector, you show your intention to pay the debt, and you can prevent the collector from taking drastic measures like getting your account frozen.

Claim An Exemption

Certain accounts can avoid being frozen altogether due to certain state laws. If your account falls under this category, you can file a paper with the court explaining the exemption. This, in combination with attending a court hearing, could result in your account being unfrozen.

Federal student loans, child support, veteran’s benefits, and aged, blind, or disabled benefits are all examples of funds that cannot be frozen.

Direct Deposit Government Assistance Funds

If your government benefits, such as Social Security, are being directly deposited into your account and that account is frozen, that money cannot be frozen. On top of this, any money from government benefits that are deposited within two months before the garnishment is not allowed to be frozen either.

However, if your Social Security is mixed in with other funds, the funds not part of your Social Security can be frozen. So, it’s a good idea to ensure that your Social Security deposits are separated from your other funds so you have no issue.