A frozen bank account is not just a financial inconvenience; it can turn into a full-blown nightmare. The inability to access funds, receive a paycheque, or pay your bills can create a high level of stress. If you find yourself in this situation, here’s everything you need to know to fix the problem.
Frozen Bank Accounts
Your bank, the government, creditors, or the Canada Revenue Agency (CRA) can freeze an account for a range of reasons, from unpaid debts to tax-related issues. How you resolve it depends on why the freeze was put in place.
Fraud or criminal activity
Your bank may freeze your account if it suspects fraud, such as identity theft or money laundering. The federal government can also freeze accounts in extreme cases, such as when it suspects terrorism or criminal financial activity.
You owe your bank money
If you have credit with the same bank that holds your money, they can freeze your account or seize funds to cover unpaid debts due to a right of offset clause. It allows the bank to act without your permission. If a mortgage or another asset secures your debt, the bank usually repossesses the asset first, but they may freeze your account if the sale doesn’t cover the debt.
You owe other creditors
If your debt is with other creditors, lenders can apply for a court order to freeze your bank account. There are costs to getting a court order, which can discourage such actions on small loan amounts.
Unpaid tax debt with the Canada Revenue Agency or Revenu Quebec
The Canadian government has significant power to collect overdue taxes. They can freeze your bank account and take other legal actions (wage garnishment, liens, etc) until you fulfill your requirement to pay.
What Happens When My Bank Account is Frozen?
A frozen bank account means you won’t be able to access any deposits, including pensions or paycheques. You’ll be unable to make withdrawals, and debt payments won’t go through the account.
You’ll need to make other arrangements to pay your rent, mortgage, loans, and living expenses. You may incur fees if debit transactions are returned due to non-payment.
How Long Will My Account Be Frozen?
Once again, it depends on the conditions of the freeze and any pre-determined schedules. For example, there is an extensive collection period framework that determines how long the CRA can collect debt. The general idea is that once you pay your outstanding debt, the bank releases your account.
Will I Be Notified Before My Account is Frozen?
The CRA will try to contact you by phone and mail before it freezes your bank account.
What Can I Do if My Bank Account is Frozen?
If you find that your bank account is frozen, immediate action is prudent.
Determine why your bank account is frozen
First, understand why your account is frozen, as that decides your next actions. For example, if you’re a victim of fraud or suspicious activity, the account may stay frozen until you resolve those issues..
Open a new bank account
A frozen bank account won’t allow you to access any money in the account. So, you need to open a new account at a different bank.
Notify your employer and any other sources of direct deposit of your new bank account information so they can update the deposits accordingly. Also, notify any companies that automatically deduct money from your account, such as your landlord, mortgage company, and subscription services.
Contact your creditors
Most lenders and the CRA will be happy to discuss payment arrangements with you. If you communicate with them and can agree on a reasonable solution, they can remove the account freeze.
What if I Can’t Pay My Debts?
If you don’t have the money to pay what you owe, a legally binding debt relief solution can provide a sense of relief. Credit counselling agencies and debt settlement companies offer ways to deal with your debt, but their options are not legally binding. Instead, opt for a Licensed Insolvency Trustee (LIT), the only debt professional who can grant you legal protection from your creditors. Your LIT will put a solution in place to help you get rid of your debt and stop your creditors from harassing you.
Two options your LIT might offer are a Consumer Proposal and Bankruptcy. Both will eliminate your unsecured debt, including tax debt, with some exceptions. Once either option is put in place, your creditors must stop all collection activity, legal activity, and unfreeze your bank account.
A Consumer Proposal can significantly reduce your debt. You’ll have one monthly payment to make to your LIT, who will distribute it to your creditors. Consumer Proposals offer ample repayment terms, although you can repay it sooner if you have extra money. Another benefit is that Consumer Proposals allow you to keep assets.
Filing for Bankruptcy is generally for borrowers who can’t comfortably manage a Consumer Proposal. Once you file, your creditors must stop contacting you and release your bank account. Each province allows you to keep assets when you file for Bankruptcy. If you have any assets that are not exempt, they can be assigned to your LIT, who’ll sell them to repay your creditors.
Help With Your Frozen Bank Account
If your bank has frozen your bank account, you don’t need to deal with this alone. Our Licensed Insolvency Trustees at LC Taylor have been helping clients navigate debt issues for over 30 years. We offer fast, friendly service to help you get back on track as soon as possible. Contact us online or call us at 205-925-6400 to schedule a free consultation.
Leigh C. Taylor, LIT
