Bank account frozen or closed

Banks usually freeze or close an account for one of four reasons: a fraud or security review, activity their monitoring systems flag as unusual, a garnishment or levy from a creditor or the government, or a negative balance that was never repaid. A bank can generally close an account for almost any reason under its deposit agreement and often will not say why, but it must return money that belongs to you, usually by mailed check. If the closure was reported to ChexSystems, you have the right to see that record and dispute it.

Frozen, restricted or closed: what each means

Common reasons banks take action

• Possible fraud. A login from a new device, a large or unusual transfer, or a deposited check that later bounces can trigger a freeze to protect you or the bank.
• Suspicious activity reviews. Banks must watch for money laundering and scams. Many cash deposits, frequent transfers to people you do not know, or money arriving from a scam victim can lead to a review or closure.
• Garnishment or levy. A creditor with a court judgment, a state agency or the IRS can order the bank to hold your money.
• A negative balance. An account left overdrawn for weeks is often closed and the balance "charged off".
• Identity or paperwork issues. Missing ID documents or a name or address mismatch can freeze a new account.
• A business decision. Banks can close accounts they no longer want, such as after many returned items or disputes.

What to do right away

1. Call the bank using a number you trust, such as the one on the back of your card or on the bank's own website, not a number from a text or email. Scammers send fake "account frozen" alerts.
2. Check your mail and secure messages. Banks often send a letter explaining the hold or giving a closure date.
3. Redirect incoming money. Change your direct deposit, and update automatic payments so bills do not bounce.
4. Provide what the bank asks for, quickly. A fraud review may only need proof of ID or an explanation of a deposit.
5. Write everything down. Note dates, names, reference numbers and what you were told.

What you can ask the bank

• Is my account frozen, restricted or being closed?
• Is this because of a legal order? If so, who is the creditor or agency, and what court or case number?
• What documents would help resolve this, and where do I send them?
• How long will the review take?
• If the account is closing, when and how will I get my balance?
• Will the closure be reported to ChexSystems or another screening company?
• What happens to pending checks and scheduled payments?

Do not be surprised if the bank will not give a reason. Banks often keep their risk decisions private, and if a bank has filed a suspicious activity report, federal law forbids it from telling you. A vague answer is not always stonewalling, but you are still entitled to your money.

Garnishments and levies

If a creditor has a court judgment, it can ask a court to order your bank to hold and turn over money. The bank does not decide whether the debt is valid; it follows the order. You should receive court papers explaining how to claim exemptions.

• Federal benefits are protected. If Social Security, SSI, VA benefits or certain other federal benefits are directly deposited, the bank must automatically protect two months of those deposits from most garnishment orders. Exceptions include some federal debts and child support.
• State exemptions vary. Many states protect a set amount or certain types of income. To claim them you usually file a form with the court by a short deadline, so act quickly.
• IRS levies. The bank holds the money for 21 days before sending it to the IRS. Contact the IRS right away if you think the levy is wrong or causes hardship.

If you do not recognize the debt, see your rights with debt collectors. A legal aid office can often help with exemptions for free.

Getting your money back

When a bank closes an account, it typically mails a check for the remaining balance to the address it has on file, after subtracting any fees or amounts you owe it. Some banks let you transfer the money instead.

• Confirm your mailing address before the closure date.
• Ask when the check will be sent, and follow up in writing if it does not arrive.
• If the bank is holding funds for a long time with no end date, ask for a timeline in writing and complain if you do not get one.
• An uncashed check or forgotten balance may eventually go to your state's unclaimed property program.

A closed account with a negative balance is still a debt. If you do not pay or settle it, the bank may send it to a collection agency.

ChexSystems and how to dispute it

ChexSystems is a consumer reporting company that many banks and credit unions check before opening an account. It records things like unpaid negative balances and accounts closed for suspected fraud. Early Warning Services is another company used for the same purpose. Both are covered by the Fair Credit Reporting Act, which means:

• you can get a free copy of your report at least once every 12 months, and after a bank turns you down based on it
• you can dispute anything inaccurate or incomplete, and the company generally has 30 days to investigate
• negative records generally stay for up to five years with ChexSystems

Request your report at chexsystems.com. If something is wrong, dispute it with ChexSystems and with the bank that reported it, and include copies of your proof. If you did owe money, paying it and asking the bank to update the record to "paid" can make it easier to open a new account. Our guide to disputing a credit report error walks through the same dispute process.

Second-chance accounts and other options

A ChexSystems record does not have to lock you out of banking.

• Second-chance checking accounts are offered by some banks and credit unions to people with a negative banking history. They may have a monthly fee or limits at first, and often convert to a regular account after a period of good use.
• Low-cost accounts with no overdraft fees, including accounts certified under the national Bank On standards, are designed for people who want a simple account.
• Credit unions may look at your full situation rather than a screening report alone.
• Prepaid cards can bridge a gap, but compare fees carefully. You can check prepaid card companies' records.

When to escalate

If the bank will not return your money, gives no timeline, or reported something false, put a complaint in writing. Our guides on writing a complaint letter and filing a complaint explain how. Regulators that take complaints include the Consumer Financial Protection Bureau (CFPB), the Office of the Comptroller of the Currency for national banks, the NCUA for federal credit unions, and your state banking regulator. Before choosing a new bank, you can compare banks' complaint records on bank accounts.

This guide is general information, not legal advice. Garnishment exemptions and some banking rules vary by state.

Questions and answers