Who Can Freeze a Bank Account?
A frozen bank account can be the end result of months of credit troubles or illegal activity. Several government organisations and private businesses have the ability to freeze your accounts for the purposes of collecting debts, obtaining evidence of your illegal activity and preventing the further loss of your funds due to identity theft.
If you are suspected of certain crimes involving fraud, embezzlement, theft or the sale of illegal drugs, law enforcement may be empowered to freeze your bank accounts as part of the investigation and evidence collection process. This is done to prevent you from closing your bank accounts and hiding or otherwise getting rid of potential evidence. Tracing your finances is particularly important in large-scale fraud or drug distribution cases to determine where deposits originate from and to determine the total amount of cash involved in the fraud, theft or other crime.
The Internal Revenue Service
The Internal Revenue Service has the power to freeze your bank account while in the course of pursuing you for unpaid federal taxes. This account freeze, also known as a bank levy, effectively locks you out of your account while the IRS seizes the entire balance. Your bank is required to provide you with a written notice of a pending IRS bank levy. There are some circumstances in which you may overcome an IRS bank levy and stop the seizure of funds in your bank accounts. These include proving that account seizure could cause significant financial hardship such as the loss of your home or the inability to care for dependents.
A creditor may obtain a judgement from a civil court to seize a portion or the entirety of funds held in any of your bank accounts for the lawful payment of a debt. Under the terms of a court judgement, you may be frozen out of your account so you are unable to withdraw funds that would block a creditor's rightful action to seize money for debt payment. This type of judgment is not legal in all states. Some states only allow account seizures relating to delinquent child support payments and the payment federal or state taxes. Additionally, as of 2009, the Exempt Income Protection Act prevents a creditor from freezing a bank account that contains less than £1,625 if the account contains protected funds including Social Security payments and child support funds. The exemption limit for all other bank accounts is £1,131.
Your bank may freeze any of your accounts if it suspects you may be a victim of identity theft. This practice is done for your protection, to prevent more illegal attempts to seize funds in your accounts. Notifying your bank promptly of any unauthorised payments on your account can help limit your liability for fraudulent checks and debit purchases. According to the Federal Trade Commission, your liability is limited to £32 of fraudulent purchases as long as you notify your bank within 60 days of the illegal account activity.