Frozen Bank Account - Your Rights and What To Do Next

What to do When the Bank Freezes Your Bank Account

Debt in Canada is in a sorry state.

Even pre-2020, the amount owed was at peak levels, and that figure has only worsened in the face of job losses and more.

The situation is so dire that 49% of Ontario residents alone are on the brink of insolvency, with 33% reporting uncertainty surrounding their financial ability to cope.

This widespread struggle looks set to see debt rates soaring even higher, a fact that countless Canadians will struggle to counter, considering they’re already spending as much as 14.9% of their incomes on debt.

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As well as leading to increases in already-high levels of insolvency, this could lead to further action from creditors seeking payments, including frozen bank accounts.

This is a terrifying possibility, especially considering that it worsens already dire financial situations.

Yet, if creditors are met with continually missed payments, it’s a step that they’re within their rights to take.

The question is, what are your rights if this happens, and what can you do to move forward?

Understanding who can freeze your accounts

In Canada, only three parties are able to freeze a bank account, and they are:

 

  • Any creditor with a court judgment

While they must seek court approval, creditors for everything from payday loans to credit cards can freeze your bank account if necessary.

Admittedly, this is a rare step, but it’s not unheard of if their efforts to contact you go unacknowledged for extended periods.

 

  • Your bank

Your bank can also freeze your account if you hold debt with them.

What’s more, this process is often more straightforward for them than other creditors as they will often write clauses to this effect within your contract.

In some cases, banks will also hold something called a ‘right to offset,’ which effectively means they may be able to seize money from that frozen account without consent.

 

  • Canada Revenue Agency (CRA)

If you owe taxes to CRA, they’re also within their rights to freeze your account if you don’t communicate or cooperate regarding repayment.

Worse, they don’t need a court order. If you fail to respond to this course of action promptly, CRA also has powers to seize your assets and worse.

What happens while your account is frozen?

The good news is that a frozen bank account isn’t quite the final nail in the coffin that it sounds.

That said, it’s still a serious issue that requires prompt action.

Ultimately, you can continue to use a frozen account to receive your paychecks, etc.

However, it isn’t possible to withdraw or transfer money, meaning that there’s a real risk outstanding payments such as mortgages, etc. will fail to complete.

In this instance, there’s a high chance your frozen bank account will face a non-sufficient funds (NSF) charge, which will further deplete your frozen funds, and could even leave you with a negative balance.

What are your rights?

In most cases, account freezing is a last resort after multiple unanswered efforts to get in touch.

As such, it’s unlikely you can refute this matter upfront, but that doesn’t mean you don’t still have rights.

For instance, on the rare occasion where an account is frozen for no fair reason, providing proof of this fact to your bank should be the end of the matter.

Even if your account is frozen for a valid reason, it’s vital to note that:

 

  • No agency (other than your bank) should ever be able to access your account details;
  • Court judgments must be in place before creditors can take this step;
  • Creditors can only remove owed money from your account.

 

What can you do?

If debts have become so severe that your account is frozen, your best course of action will almost exclusively be to file for either bankruptcy or a consumer proposal with a licensed insolvency trustee.

In many ways, this will be the communication that creditors have been waiting for in the first place, and will at least allow them to either clear or collect a percentage of your debt.

Ultimately, your trustee will work on your behalf to unfreeze your account and settle on solutions that see you facing a far better financial future.

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How to File for Bankruptcy
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Personal Bankruptcy in Canada
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