AFTER New York’s worst fire in three decades, Siraba Keita’s apartment in the Bronx was destroyed, along with everything she and her four children owned.
The last thing she had was her savings account, but Keita, 39, discovered her bank had frozen her account and was refusing withdrawals due to years-old credit card debt.
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Keita had saved more than $5,000 with JP Morgan Chase, but was unable to access that money due to $5,200 in credit card debt from Discover Bank, CNBC reports.
This is because the creditor had obtained a court order to freeze his money.
After losing his house in early January, Keita had to wait until mid-February to access some of his saved money.
His story illustrates a harsh reality for many Americans struggling with debt.
When creditors come to collect, it can destroy a debtor’s financial well-being.
In all states except Delaware, creditors can obtain court orders to freeze and seize debtors’ bank accounts.
This leads to compounding problems for people like Keita who need to rebuild after a disaster.
If your bank account is frozen due to an unpaid debt, you can protect yourself and free up some cash, but what you can do is highly dependent on your state’s laws.
What you can do if a debt collector freezes your funds
The easiest way to fight back and retain access to your money is to use an exemption.
These may be applied automatically or will need to be claimed, depending on the state.
In addition to Delaware’s garnishment ban, six states (CA, CT, DE, MA, NV, NY, and WA) have automatic protections that prevent creditors from freezing a certain amount of funds in a bank account.
These exemptions are by far the most effective protection for consumers.
They are triggered without the person concerned needing to act or understand the complex laws governing debt collection, but they are not the norm nationwide.
Fourteen states offer no debtor exemptions or protections, and many offer exemptions ranging from $1,000 to $3,000 but require consumers to agree to these protections.
One of the main problems with the obligation to take steps to grant exemptions is the low number of debtors aware of the threat of seizure of assets.
A 2020 study by Pew Charitable Trusts found that in more than 70% of debt collection lawsuits, creditors win by default because the defendant failed to appear or respond to the lawsuit.
And once your bank gets a court order to freeze your account, their only option is to immediately lock your funds.
If this happens to you, contact your bank immediately upon discovering that your account has been frozen or seized and get as much information as possible.
Ask what part of your savings is accessible, which creditor ordered the freeze, and whether or not you will be able to access the money you deposit after the freeze.
Once you know which creditor is responsible for blocking your account, contact them and see if you can agree on a payment plan or a lower amount to settle the outstanding debt.
To see how much protection you automatically have, if any, review your state’s garnishment and debt collection policies.
The National Consumer Law Center offers a good overview.
The most effective course of action to release your funds is to challenge the judgment in court, but you will need good representation to have any chance of winning your claim or reaching an acceptable settlement.
You should contact a debt attorney if your bank account is frozen or seized by a creditor.
Unfortunately, hiring a good lawyer is not a realistic option for most people, especially those who are already struggling with debt.
Many lawyers offer free consultations, however, and organizations such as the Legal Services Corporation can help identify free or low-cost legal options.
Regardless of your financial situation, you can and should speak to a legal expert to get a better idea of your rights and options in your state.
The only way to guarantee that creditors won’t seize your assets is to get your debts under control – check out these tips for paying them off.
And a personal finance expert has shared the strategies she used to clear $20,000 in credit card debt.
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