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After months or years of missed debt payments and the subsequent collection notices and mounting financial pressure that come with it, many borrowers assume they’ll have plenty of warning before a creditor takes more aggressive action. After all, there were plenty of warning signs before that point, with collection calls, texts and letters arriving at regular intervals. In some cases, though, the glaring sign that an unpaid debt has gone from being delinquent to a serious issue is when a borrower can no longer access money in their bank account.
A bank levy can be one of the most disruptive collection tools available to creditors. Because the money owed on an unpaid balance is frozen temporarily and then distributed to the creditor directly from your account, the process can delay bill payments, complicate everyday spending and leave borrowers scrambling to understand both what happened and what options they still have. And with household debt levels at record highs and more people falling behind on payments, the risk of facing this or other types of collection activity is real right now.
What catches some borrowers off guard, however, is that a checking account freeze may not always be the final step in the collection process. Depending on the circumstances, the type of debt involved and the assets a borrower owns, creditors may have other avenues to collect what they’re owed. So what accounts can creditors target after your checking account has been frozen? Below, we’ll examine five others that borrowers need to be aware of.
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What accounts can creditors target after freezing your checking account?
Once a creditor has sued you and obtained a judgment against you, they may be able to target multiple types of accounts and assets, including:
Savings accounts
If a creditor successfully freezes or levies a checking account, a savings account held at the same financial institution may also be vulnerable. In many cases, creditors can identify and seek funds from savings accounts through the same legal process used to access checking account funds. This can be especially problematic for borrowers who keep emergency savings at the same bank where their checking account is maintained.
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Money market accounts
Money market accounts often function similarly to savings accounts, and because they are deposit accounts rather than retirement vehicles, they may also be subject to collection efforts. Whether a creditor can access these funds depends on state laws, exemptions and the specific circumstances of the case. Still, borrowers shouldn’t assume that a money market account is automatically shielded from creditors simply because it isn’t used for everyday spending.
Brokerage and investment accounts
Taxable investment accounts, including stocks, bonds, exchange-traded funds (ETFs) and other investments held in non-retirement brokerage accounts, may be reachable by creditors with a valid judgment. The rules governing investment account seizures vary by state, though, and the process is generally more complex than freezing a bank account. Still, investors with significant assets outside of retirement accounts may face additional collection risks if a debt remains unresolved.
Joint accounts
Many people assume that sharing an account with a spouse, parent or adult child automatically protects the funds inside it, but that’s not necessarily the case. Joint accounts can be targeted, though it can be complicated because ownership of the funds may be disputed. For example, creditors may attempt to freeze a joint account if one account holder is the debtor. The non-debtor account holder may then need to prove that some or all of the money belongs to them and should be exempt from collection.
Certificates of deposit (CDs)
CDs are another bank-held asset that may be vulnerable after a judgment. While CDs are designed to remain untouched until maturity, creditors may still be able to pursue them. Accessing CD funds may require additional legal steps, but the existence of a maturity date does not necessarily prevent a creditor from attempting to collect against the account.
How to protect yourself before collection efforts escalate
If you’re concerned about escalating collection efforts, it’s important to explore your debt relief options as early as possible. One is debt settlement, which involves negotiating with creditors on a lump-sum settlement that’s less than the full amount owed. Note, though, that while this approach can help you resolve your unpaid balances before collection efforts escalate, it can also impact your credit score and may have tax consequences.
Another is debt consolidation. With this approach, you combine multiple high-rate debts into a single loan with a lower interest rate and more manageable monthly payments. That potentially reduces the risk of future defaults, making it easier to stay current and avoid collection activity.
Or, a debt management plan offered through a credit counseling agency may be worth considering. These plans typically result in reduced interest rates and consolidated monthly payments with creditors, making it easier and more affordable to repay what you owe over time.
In some situations, though, bankruptcy may provide the strongest legal protection against creditor collection efforts. Filing for bankruptcy can trigger an automatic stay that temporarily halts most collection actions, including bank levies and wage garnishments.
The bottom line
A frozen checking account can be a serious financial setback, but it may not be the only asset a creditor attempts to reach after obtaining a judgment. Savings accounts, money market accounts, brokerage accounts, CDs and even certain joint accounts may become collection targets depending on state laws and the circumstances involved. That’s why it’s important to understand which assets may be vulnerable and explore relief options before collection efforts gain momentum. The sooner you take action, the more opportunities you may have to avoid additional disruptions.