Can a Creditor Freeze Your Bank Account in Massachusetts?

Imagine going to the grocery store, using your debit card, and having the transaction declined. You know there's money in your checking account, but when you contact the bank, you're told that some of the funds have been frozen because of a creditor's court order.

It's a situation that can create an immediate financial problem, particularly when that money is needed for the mortgage, rent, utilities, or groceries.

One question I hear from people dealing with collection lawsuits is, "Can a credit-card company really take money out of my bank account?"

The answer is yes, under certain circumstances. But Massachusetts law provides important protections, and bankruptcy may offer a way to address the underlying debt problem.

How Can a Creditor Freeze a Bank Account?

Suppose you owe $15,000 on a credit card. You've fallen behind on payments, the account has been sent to collections, and the creditor has filed a lawsuit.

If the creditor obtains a judgment, it may attempt to collect the debt by attaching money in your bank account.

In Massachusetts, this procedure is commonly called trustee process.

Despite the name, it has nothing to do with a bankruptcy trustee. It is a legal procedure that allows a creditor to attach money or other property held by a third party, such as a bank.

Massachusetts Rule of Civil Procedure 4.2 governs this process.

Importantly, a creditor may sometimes obtain a court-approved bank attachment even before a final judgment has been entered. Ordinarily, court approval and notice are required, although the rules allow exceptions in certain circumstances.

A collection agency cannot simply call your bank and order it to freeze your account because you missed a credit-card payment. There must be a proper legal basis for the attachment. Massachusetts Government

Massachusetts Protects the First $2,500

Here's something many people don't know.

Under Massachusetts General Laws Chapter 246, Section 28A, $2,500 of an individual's money held in a qualifying bank or credit-union account is generally exempt from attachment through trustee process.

For example, suppose you have $4,000 in your checking account when the bank receives a valid attachment.

Under this statute, the first $2,500 is protected, meaning that ordinarily no more than $1,500 would be subject to that attachment.

If you have only $1,800 in the account, the entire amount would generally be protected under this provision.

There are some important limitations.

The $2,500 protection is not available separately for every bank account you own. The statute generally provides one $2,500 exemption per individual at any one time.

Other exemptions may protect additional funds, depending on where the money came from and the circumstances involved.

The protection also does not apply to every type of collection action. Massachusetts General Court

What If Your Bank Account Contains Social Security?

This is particularly important for retirees and people receiving disability benefits.

Suppose you're 68 years old and receive $2,200 per month in Social Security retirement benefits.

You have a credit-card judgment against you, and the creditor attempts to attach your checking account.

Federal law provides significant protection for Social Security and certain other federal benefits.

When qualifying federal benefits are deposited electronically, banks generally must review the previous two months of deposits and automatically protect an amount determined under federal regulations.

For example, if your account received $2,200 in Social Security benefits each month for the preceding two months, up to $4,400 may be automatically protected, subject to the account balance and applicable rules.

These protections can also apply to certain veterans' benefits and other federal payments.

However, if you receive a paper benefit check and deposit it yourself, the bank may not be required to provide the same automatic protection. You may need to establish that the funds are exempt.

The source of the money matters, and bank statements showing where deposits originated can be extremely helpful. Consumer Financial Protection Bureau

Can Bankruptcy Stop a Bank Account Attachment?

In many cases, yes.

Filing Chapter 7 or Chapter 13 bankruptcy generally creates an automatic stay under Section 362 of the Bankruptcy Code.

The automatic stay ordinarily prohibits creditors from continuing collection efforts involving debts incurred before the bankruptcy filing.

That includes most efforts to attach bank accounts, garnish wages, or enforce collection judgments.

There are exceptions, including limitations that may apply when someone has had previous bankruptcy cases dismissed within the preceding year.

However, there is an important distinction between stopping a creditor from continuing collection activity and obtaining the release of money that was already frozen.

Filing bankruptcy does not necessarily result in the immediate release of an existing bank-account freeze.

Additional steps may be required to determine whether the money belongs to the bankruptcy estate, whether it is exempt, and whether the creditor must release the attachment. U.S. Code

This is one reason I encourage people facing an actual bank attachment to address the situation promptly rather than assuming everything will resolve itself once the bankruptcy petition is filed.

Will You Lose the Money in Your Account If You File Chapter 7?

Not necessarily.

This is a separate issue from whether an ordinary creditor can attach your bank account.

When someone files Chapter 7 bankruptcy, the money in their bank accounts generally becomes part of the bankruptcy estate.

However, bankruptcy exemptions may allow the debtor to protect some or all of that money.

Massachusetts residents who meet the applicable requirements may choose between Massachusetts exemptions and federal bankruptcy exemptions.

The Massachusetts exemption system includes protections for cash and bank deposits under Chapter 235, Section 34. Federal bankruptcy exemptions also provide protections that may be available for bank-account balances.

The best choice depends on the person's entire financial situation.

For example, someone with $3,000 in checking, a modest vehicle, and no real estate may have a different exemption strategy from someone who owns a home with substantial equity.

I would want to review the account balances, source of the funds, and other assets before recommending which exemptions to use.

What Should You Do If Your Account Is Frozen?

First, contact the bank and find out who obtained the attachment, which court issued the order, and how much money has been restricted.

Request copies of the relevant paperwork.

Next, determine whether the money is protected by an exemption. This is especially important if the account contains Social Security, veterans' benefits, public assistance, or other potentially exempt funds.

Don't assume that every dollar in a frozen account is legally available to the creditor.

You may be able to challenge the attachment or seek the release of protected funds through the court.

And if the attachment is only one part of a larger financial problem involving credit cards, medical bills, or other debts, it may be worth considering bankruptcy.

I would also caution against transferring money to relatives or moving funds around simply to prevent creditors from reaching them. Those transactions can create additional legal problems, particularly if bankruptcy is being considered.

Address the Debt Before It Becomes an Emergency

A bank-account attachment can be more disruptive than a collection letter or telephone call.

When someone suddenly loses access to money needed for everyday expenses, even temporarily, the consequences can be serious.

Massachusetts provides meaningful protections, but those protections work best when people understand and assert their rights.

If you're facing collection lawsuits, judgments, or a bank-account attachment, Common Law Associates, LLP can review your financial circumstances and explain whether Chapter 7, Chapter 13, or another approach may help.

The objective is to resolve the underlying debt problem, not simply deal with the next collection attempt.