Freezing a Bank Account in Canada: Rules and Remedies

Frozen Bank Account: Why It Happens And What You Can Do

A certified cheque is a guaranteed form of payment, which means there’s no chance of insufficient funds when the cheque is cashed. Certified cheques are purchased for a fee.

A frozen bank account isn’t a common occurrence, but if it happens, you won’t be able to access your funds 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 to figure out why it happened and take steps to unfreeze your account.

What it means to freeze a bank account

When a bank account is frozen, the bank denies the account holder the ability to conduct any transactions using the account. Your account is still open but you can’t access any funds.

This means you cannot make withdrawals or transfers, and any payments you set up will not go through. Any open transactions will be cancelled and if you have sent out any cheques, they will not be honoured. You may be able to make deposits but those funds will also be frozen.

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 happens when a bank account is frozen?

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.

When the bank, creditor or 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.

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.

If 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.

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.

No. If you notice any suspicious activity on your bank account, you can request a hold on the account. This is not the same as an account freeze, but it shuts down any activity on your account until the issue can be solved.