Frozen Bank Account – What Do I Do Now?

Frozen Bank Account

When you are behind on your payments, freezing a bank account is one of the debt collection options available to creditors. You will be unable to withdraw or transfer money from your bank account until it is unfrozen. This will likely cause additional financial hardship due to the existing debt problem and the requirement to continue paying your general living expenses.

If you are struggling with a frozen bank account, rest assured there are solutions to help you unfreeze any frozen bank accounts you might have. After you read this article, check out our article on how to stop collection calls.

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Who can freeze your bank accounts & why is a bank account frozen

There are many types of creditors that are able to freeze your bank accounts. The most common type of creditors are those to whom you owe money for things like credit cards, lines of credit, student loans and income taxes.

Most creditors require a court-ordered judgment in order to freeze your bank accounts and seize money from them. In simple terms, this means they must successfully sue you in order to freeze any account in your control. Canada Revenue Agency is an exception to this which we will discuss further in the article.

In general, they can be broken down into two categories; general creditors & Canada Revenue Agency. Below, we have included a list of the most common creditor types as well as any special rules they may or may not possess.

General Creditors


In order for a bank to freeze a bank account at another bank, they do require a court-ordered judgment.

They do have the special ability known as a ‘right of offset’ which allows them to seize funds and take payment from any bank account you have at their institution to offset any debt amounts owed to that bank.

This can be done without your consent or advising you. With that said it is quite uncommon that a bank would offset funds from your bank account without first attempting other collection activities like collection calls, etc.

While the right of offset doesn’t actually ‘freeze’ your bank account, it does work in a similar manner. The bright side is that unlike a frozen bank account as a result of a court order your bank can release funds to you should they choose.

Payday Lenders

Payday lenders have no special rules and would require a court judgment in order to freeze bank accounts to collect on any unpaid payday loans.

Due to the relatively small amounts that are lent by payday lenders, it is quite uncommon to see them pursue legal action when compared with other creditors.

Auto Financing Companies

Generally speaking, vehicle financing companies would first pursue repossessing the financed vehicle, if available, prior to initiating any legal action to seize funds or garnish wages. The most common chain of events when you are behind on your vehicle payments is:

  1. Once you fall behind you will begin receiving collection calls;
  2. In the event you are unable to catch up the creditor will pursue a repossession;
  3. They will usually sell the vehicle at auction. The proceeds of the sale are applied against the outstanding loan; and finally,
  4. They would then, if they chose, commence legal actions against you and obtain a court order to recover the outstanding balance owing (if any) which could include freezing your bank accounts.

Credit Card Companies

Independent credit card companies do not have any special rules and would require a court order in order to freeze a bank account.

If the credit card issuer is the same financial institution where you have your bank account, they can exercise their right of offset, as explained above.

Canada Revenue Agency (CRA)

Canada Revenue Agency has the ability to freeze bank accounts without obtaining a court order if you owe taxes. A CRA account manager or representative will usually attempt to contact you to make payment arrangements several times prior to initiating a freeze on your bank account.

We recommend being proactive when you owe tax debt and the possibility of CRA freezing your bank account given the additional powers they have to collect unpaid tax debt.

How to unfreeze a frozen bank account

How to unfreeze a frozen bank account

If you are suffering from a frozen bank account you will want to quickly take action to remedy the situation. There are two main ways.

Make arrangements with your creditors

The first step that many take is to contact their creditors directly to attempt and make payment arrangements to have their accounts unfrozen. This approach can be effective if you have the financial means to catch up on your payments. You should expect to make a full or partial payment up-front before they will release any funds.

Based on what we have seen, this method is most effective if you are dealing with bank accounts frozen by your own bank that has exercised their right of offset. It is usually less effective against a creditor who has a court order to seize funds.

If you have tax debts, it is unlikely CRA will release their freeze on your account until you make substantial payments towards your tax debt obligations.

There is no set rule as to what creditors will accept in order to release frozen bank accounts as every financial institution is different and every circumstance is different.

Legal options to unfreeze accounts

If you are unable to pay the debt owed then you may want to consider filing a consumer proposal or personal bankruptcy. These are filed with a Licensed Insolvency Trustee and will immediately remove any freeze a creditor has on your bank account.

When you file a consumer proposal or bankruptcy, you are granted a stay of proceedings. A stay of proceedings stops all legal action & collection activities against you including frozen accounts. This also applies to most CRA collection activities in relation to tax debt.

Both options allow for relief & reduction of most unsecured debt as well as tax debt. Shortly after filing a consumer proposal or bankruptcy your Licensed Insolvency Trustee will send notice to your creditors which includes the stay of proceedings.

Despite popular belief, you do not lose everything in Bankruptcy. Learn more about the assets you can keep in Nova Scotia, New Brunswick, or Prince Edward Island.

Consumer Proposal

A consumer proposal is an alternative to bankruptcy that allows you to repay less than you owe, but more than your creditors would otherwise receive had you filed a bankruptcy. Payments are typically structured over 60 months and have 0% interest.

Read more about consumer proposals here.

Personal Bankruptcy

Bankruptcy is a legal insolvency proceeding and is often seen as the last resort option when dealing with debt. It is based upon your household income, household size, and realizable assets. A bankruptcy lasts for either 9 or 21 months if it is your first bankruptcy, or 24 or 36 months if it is your second bankruptcy.

Read more about bankruptcies here.

How to protect yourself from having an account frozen

How to protect yourself from having an account frozen

There are several things you can do to protect yourself from having your bank account frozen.

  1. Cooperating with your creditors can help reduce the odds they will attempt to take any invasive collection activities. This is especially true with CRA; despite popular belief, if you cooperate with CRA they are generally quite understanding. Usually, it is only when they feel you are being unresponsive or uncooperative do they take harsh approaches.
  2. If you fear your bank account may be frozen you are best to open up a fresh new account at a bank or institution to whom you owe no money. While there is no guarantee that a creditor won’t find out about this account it generally provides you additional time to find an appropriate solution. It is important to remember to direct new automated deposits to this new bank account. And despite popular belief, there are no special bank accounts for bankrupts – you simply want to open a regular account with a bank where you owe no money.
  3. The best thing you can do is deal with your situation prior to it getting out of hand. If you are unable to meet the demands of your creditors then you may want to seek the professional advice of a Licensed Insolvency Trustee who can explain all of your debt relief options.

Some other things you may need to know

Here are a few other things you should know about frozen bank accounts, in no particular order.

You shouldn’t ignore the problem

Ignoring the problem will only make things worse. If you are subjected to a bank account freeze your regular bill payments will still attempt to be withdrawn. Unfortunately, this will often result in NSF fees that will further compound the issue. This can lead to additional unpaid debts that may make your situation worse. Creditors may attempt to collect in other ways as well, such as with a wage garnishment.

If you act quickly, your money isn’t necessarily lost

Just because your bank account has been frozen doesn’t mean your money is gone forever. In the event you do have money seized from your account, but it has not yet been sent to the creditor who initiated the freeze, and you file a consumer proposal or bankruptcy that money may get returned to you.

The above does not apply to banks that have exercised their right of offset.

If your account is frozen, open a new account

It is highly recommended that you open up a new bank account if your account is frozen as quickly as possible. It often takes employers several days, and sometimes weeks to update pre-authorized debit information to deposit your paycheque into your account.

This new account should be at a different bank or institution than where you owe money.

If you wait to open a new account and switch over your paycheque you may end up losing an additional pay.

Common Questions

Can CRA take money from or freeze a joint account?

Despite many sites indicating that CRA cannot freeze or seize funds from a joint account in regards to tax debt, we recommend that you remove your name from that account in order to protect the other account holder if you are concerned.

While they may, or may not have the power to take funds from joint bank accounts, it is better to be safe than sorry.

Can other creditors take money from a joint bank account?

In the Maritime provinces, the answer is yes, your creditors can take money from a joint bank account. The amount, how much, and the limitations vary by province.

  • In Nova Scotia, as per Nova Scotia Civil Procedure Rules Para 79.09, a creditor can receive a court order to seize 50% of the funds within a joint bank account unless the other account holder proves more than 50% of the funds are theirs.
  • In New Brunswick, as per The Enforcement of Money Judgements Act Para 49(1), a creditor can receive a court order to seize 50% of the funds within a joint bank account unless the funds in the accounts do not belong to the debtor. In NB the Act reads as though the entire amount inside of the joint account would get seized and then returned to the other party, as applicable. This could be a surprise for the other party if this were to occur.
  • PEI does not specifically state in their Garnishee Act whether or not joint accounts can be frozen. It does, however, indicate that the debts attachable to the Act include all sums of money liquidated and unliquidated, legal and equitable, payable or accruing due.

If you owe money and are joint on any bank accounts, you may want to consider removing your name from the accounts to protect the joint owners.

Can money be taken out of a frozen account?

Yes – an account is frozen by way of a court-ordered garnishment against a bank account unless it is frozen by CRA. This permits a judgment creditor or CRA to take funds out of the account.

Does the bank notify you if your account is frozen?

It would be uncommon for a bank to notify you that an account is subject to a freeze.

How long can a bank account be frozen in Canada?

In practice, there is no practical time limit, especially as it relates to CRA. For judgment creditors, the timeline would be for as long as they have a valid judgment. In Nova Scotia, for example, a judgment lasts for 5 years and can be renewed three times. This means a judgment in Nova Scotia could last as long as 20 years.

Can collection agencies take money from your bank account in Canada?

Whether or not a collection agency can take money from your bank account depends on the province. The rules and path they must take (such as obtaining a judgment against you) depends on the province you live in.

What about creditor (Insert Creditor Here). Can they freeze my bank account?

As described in our article, most creditors can freeze your account with an appropriate court order. Some creditors, like CRA, do not and can freeze an account without a judgment.

Angela Rodgers LIT

This article was written by Angela Rodgers, CIRP, LIT. She is a Licensed Insolvency Trustee and the President of Powell Associates Ltd. She has worked in the insolvency industry for over 20 years. No matter if you are looking at filing bankruptcy, a consumer proposal, or simply looking for debt management advice, Angela can help.