Frozen Bank Account: Why It Happens And What You Can Do
A frozen bank account isn’t a common occurrence, but if it happens to you, access your deposited funds won't be possible until the situation is resolved.
Bank account freeze rules can be applied in Canada for several reasons, typically fraud or unpaid debt. If your account has been frozen, don’t panic. Contact your bank or credit union to figure out why it happened and take steps to unfreeze your account.
What it means to have a frozen bank account
When the bank, creditor or Canada Revenue Agency (CRA) has your bank account frozen, any activity is stopped. You can’t access your accounts for withdrawals, transfers or deposits. It also means that funds from any type of incoming deposits, including any paycheques or direct deposits from an employer, are also frozen until you get the issue resolved.
Additionally, it means any pre-authorized debits will be frozen as well. So if you have any mortgage payments, utility bills or car payments set up to be automatically withdrawn from your bank account, they will not go through. You will need to find another method to pay these bills in the meantime.
You may not be notified by your bank when your account is frozen. So you may discover the freeze inadvertently when you try to use your bank account or debit card.
Bank account freeze rules in Canada
Who can freeze a bank account?
Under the Bank Act of Canada, three entities have the right to freeze your bank accounts.
Banks: Financial institutions can freeze your account without a court order if there’s suspicious activity in the account or if you have unpaid debt.
General creditors: If you’re behind on paying your debts and your creditor goes to court and gets a judgement against you, then it has the power to have your bank account frozen to collect the outstanding amount.
Canada Revenue Agency: If you owe taxes, the CRA can freeze your accounts to collect taxes without obtaining a court order.
Note: The federal government also has the power to freeze bank accounts in certain circumstances — with or without invoking Canada’s Emergencies Act. These circumstances may include suspected terrorism or financial crimes.
Bank accounts are typically frozen for one of two reasons:
Suspicious activity. For example, if it looks like you have been a victim of fraud, then the banking institution can freeze your account to protect the funds you have until everything is sorted out.
Debt. If you have outstanding debt, then both the CRA and creditors have the power to freeze your bank account and stop you from spending the funds until you make payment arrangements.
If you’re struggling with debt, it’s in your best interest to seek help and contact the CRA or any debt collectors to come up with a payment plan before it gets to the stage where your account is frozen.
What to do if your bank account is frozen
The first thing to do if your bank account is frozen is to get in touch with your bank and figure out the reason and steps to take to resolve it. If you are a victim of fraud, then you’ll need to start the process of having it investigated right away.
In the event that your bank account has been frozen due to debt obligations, then the bank should be able to provide you with all the required details. This includes the contact information of the creditor who had the account frozen so you can get in touch with them and work out a payment plan to have the freeze lifted.
If you’re unable to make sufficient payments towards your debts, you may have to seek advice from a government-regulated professional, Licensed Insolvency Trustee (LIT). A LIT can help file a consumer proposal and deal with the creditor to unfreeze your accounts.
Depending on the reason for the freeze, it could take days or even weeks to restore functionality to your account. You may need to open a backup account at a separate institution to use for paycheque deposits and bill payments.
Frequently asked questions
Is it legal to have my bank account frozen?
Is it legal to have my bank account frozen?
While it may seem extreme, freezing a bank account is legally allowed under the Bank Act of Canada. Additionally, there is no time limit for how long a bank account can be frozen in Canada.
Can I freeze my own bank account if I suspect fraud?
Can I freeze my own bank account if I suspect fraud?
No. If you notice any suspicious activity on your bank account, you should notify your bank immediately. Usually they will lock your debit card until the issue can be resolved (usually by sending you a new card or resetting your PIN), but your automatic bill payments and direct deposits will still go through.
DIVE EVEN DEEPER
Siddhi Bagwe
Siddhi Bagwe