6 Reasons Your Bank Account Is Frozen and How to Fix It

Imagine trying to pay a bill or access your money, only to find your bank account is frozen—it’s a situation no one wants to face.  Whether you're an individual or a business owner, this situation can disrupt your payments, cash flow, and daily operations. For businesses, in particular, a frozen account can lead to missed payments and strained relationships with suppliers or clients.

But why does this happen? And more importantly, how can you resolve it quickly? Banks freeze accounts for a variety of reasons, and understanding the root cause is the first step toward fixing the issue.

In this guide, we’ll explore the six most common reasons for a frozen bank account, the steps you can take to unfreeze it, and strategies to prevent it from happening again.

Let’s dive in.

A frozen bank account is a bank account that has been locked or put on hold by the bank. When an account is frozen, the bank holds (freezes) any outgoing funds, meaning you will not be able to make a bank transfer, withdraw your cash online or at the ATMs, or pay bills. Your scheduled payments will also be put on hold.

Essentially, you won’t be able to access your funds until the situation is resolved.

However, it’s not entirely inaccessible, as you can still monitor and check your balance in a frozen bank account.

This freeze can be court-ordered or initiated by the bank itself. Some funds, like government-related ones (e.g., Social Security, disability benefits, unemployment benefits, child support, private pensions, etc.), are exempt from freezing.

Any type of account, except those with only exempted funds, can be frozen. This applies to checking accounts, business accounts and joint accounts alike.

There are several reasons why a bank may freeze, put a hold on, or lock your account. Depending on the situation, the bank may or may not notify you. 

To give you a clearer picture, here is the breakdown of the main reasons why your bank account can be frozen.

Banks may freeze accounts when they detect suspicious activity. This is done to prevent money laundering, terrorism financing, fraud, or other illegal activities.

Even if you or your company are not involved in illicit activities, certain transaction patterns or amounts can automatically trigger red flags. When the bank suspects that, they will take precautions. Suspicious activity may include, but are not limited to:

• Large deposits or withdrawals, especially those involving cross-border transfers
• Transfers to or from high-risk sources or regions
• Sudden increases in transaction volume, frequency or amount 
• Frequent cash deposits
• Purchases of high-risk items, such as precious metals 
• Transactions inconsistent with the business's normal operations or financial profile

In some cases, law enforcement can order banks to freeze accounts during ongoing investigations, and customer service representatives may be restricted from providing information due to legal orders.

Business bank account freezes linked to suspicious banking activity can be the trickiest to deal with.

However, if the account is frozen based on just one problematic transaction or a coincidental pattern, you may be able to resolve the issue by showing where the money came from and what it was for. ***

This reason is similar to suspicious activity, but it centres more on transactions that seem out of place, suggesting that someone unauthorised might have accessed your account rather than the bank assuming you're involved in illegal activity.

If the bank detects unfamiliar or inconsistent transactions—particularly in locations or for purchases that do not match your usual spending patterns—they might suspect your account has been hacked or that you've fallen victim to a scam or identity theft.  As a precaution, they might temporarily freeze your account.

Examples of unusual transactions include:

• Large purchases made in distant locations where you typically do not shop or travel
• Repeated attempts to make an unusual transaction
• Multiple small transactions that are rapidly processed
• Unfamiliar recurring payments or subscriptions
• Sudden high-value transfers to unknown accounts
• Spending in foreign currencies when you are not travelling abroad.

In such cases, banks freeze the account as a precautionary measure to prevent fraud, often initiated by stolen cards or compromised account credentials. A freeze gives you and the bank time to investigate and verify if the transactions were indeed authorised.

Unpaid debts to creditors, such as credit card companies or the government, can result in your bank account being frozen. While lenders cannot freeze your account directly, they can obtain a court judgment to compel your bank to do so.

Funds can then be taken from your account for debt collection, but the creditor can only seize what you owe, along with lawful fees. Some funds, such as federal benefits or funds reserved for basic necessities, are protected and cannot be taken. The court will determine how much can be seized.

However, the creditors, who are mostly financial institutions, will first need to notify you with a court order provided. When the account is frozen due to debt, the bank will also contact you to notify you of the case. 

The same circumstance can also be applied to debts owed to the government. The debts can be those related to government fees and other types, including:

• Unpaid taxes
• Student loans
• Other types of loans, comprising car loans, personal loans and more
• Mortgages
• Settlements on divorce

If this occurs, get the details of the creditor’s attorney as soon as possible. Then, arrange a payment plan for your outstanding debts or explore debt relief options to lift the frozen bank account and avoid further issues.*

Banks have the authority to freeze accounts if customers fail to adhere to the terms and conditions outlined in their account agreements. This includes situations where customers provide inaccurate information, such as incorrect addresses or false income details, or fail to supply required documentation. 

For instance, US Bank's Deposit Account Agreement specifies that customers must provide accurate information and comply with the bank's policies. Failure to do so may result in the bank freezing the account or declining to process checks.*

Usually, in such cases, to lift the freeze, customers must correct any inaccuracies, provide any missing or updated documentation, and ensure full compliance with the bank’s policies.

When an account remains without activity or transaction history, it raises security concerns because unused accounts are vulnerable to fraud. Criminals may target these accounts, exploiting the lack of regular monitoring.*

Additionally, maintaining inactive accounts incurs ongoing costs for banks. To address both security risks and financial burdens, banks often freeze accounts and may eventually close them after a period of dormancy. 

In the US, state laws may require banks and financial institutions to transfer dormant funds to the state's unclaimed property office after a specified period of inactivity, which typically ranges from three to five years, depending on the state. This is called ‘Escheatment’. Banks usually notify customers before this occurs.*

When a business undergoes liquidation, banks may freeze its accounts to prevent transactions that could interfere with the insolvency process and potentially expose liability for debts incurred during this period.

Liquidation can be initiated voluntarily by the company’s directors or shareholders, or it can be triggered by a petition from creditors. A creditor’s petition is a formal demand for payment that, if ignored, can force the company into liquidation. This process typically involves the court, and the conditions may vary by country or state. 

Usually, the creditor must prove that the company is unable to pay its debts, and the amount of debt must exceed a certain threshold as defined by the relevant jurisdiction.

There are a few things you can do to unfreeze your bank account. Below are the key actions.

Contact Your Bank

The first step is to reach out to your bank. In most cases, the bank may notify you of the reasons behind the freeze. If you haven’t received any communication, contacting your bank directly is the best course of action. They can clarify whether the freeze was due to an error or any other cause.

If appropriate, your bank may tell you which specific transactions triggered the account freeze and will walk you through what documentation could help unfreeze your account. This could include providing identification or proof of recent activity.

For business accounts, the bank may request that the company director meet with a bank representative in person at one of their branches. Additionally, you may be asked to provide the most up-to-date information of the business and the account holder.

The time it takes to unfreeze an account varies by bank. Cooperating with your bank is usually the fastest and best way to solve the issue.

Seek Legal Advice

Banks are not always obligated to disclose the reason why an account is frozen, especially if it’s due to suspicious activity. Therefore, if you're unsure about the situation or if it's complicated, such as being related to a court order due to debt, you should seek legal advice and learn your rights regarding frozen accounts.*

If you let the situation run for too long, your bank account could be automatically closed due to inactivity.

• Explore Alternative Payment Methods: While your account is frozen, inform service providers linked to direct debits or automatic payment. Find alternative payment methods and update your payment details to avoid missed payments and extra fees.
• Contact Creditors or Authorities: If the freeze is due to unpaid debts or legal issues, get in touch with the relevant creditors or authorities to resolve the matter and prevent further complications.
• Keep a Record of All Communications: Document every interaction with your bank, creditors, or legal representatives. This will help you track progress and maintain a clear timeline of events.
• Understand Your Options: Make sure you're aware of your legal rights and available options in your state or jurisdiction, as these can vary. For example, in many US states, if the frozen account contains only exempt funds from the government or those for essential needs, you may be able to file a “Protected Property Claim Form” with the court to safeguard those assets.

Unfreezing your bank account can be a hassle, so it's best to avoid getting it frozen in the first place.

Some of the following tips can help to prevent your bank account from being frozen:

• Consolidate with your debt collectors: Falling to do so could force them to take legal actions, which can cause complications for you. Have a conversation, and see how you can find ways to settle your debts to prevent your bank account from being affected.
• Keep track of payment deadlines: Ensure that you make payments associated with this account on time. Scheduling your payments automatically can be a great way.
• Maintain a positive account balance: Monitor your bank account’s activities. See if any unrelated transactions could be suspicious, thereby avoiding any relation with it.
• Do not mix your funds in a single bank account: For instance, use one bank account for certain purposes, such as direct deposit, social security, expenses, and more. Most importantly, you should use different accounts for personal and business finance.
• Be cautious about sensitive information: HSBC Hong Kong suggests that every account holder must be cautious not to share personal and sensitive information, get involved in offers and deals that have no proof of income, and scammers claiming to be from law enforcement offices and so forth.*
• Notify your bank about foreign transactions or large purchases: If you plan to use your account abroad or make a big purchase, it's wise to inform your bank beforehand. This helps prevent transactions from being flagged as suspicious.
• Consider multiple accounts for business operations: Businesses should think about opening several accounts to ensure that their operations continue smoothly, even if one account gets frozen or compromised. However, note that this strategy won't protect against freezes resulting from debt or fraud.

A frozen bank account can cause significant inconvenience by restricting access to your funds and limiting your ability to make transactions. Moreover, If your bank freezes your account, it can seriously affect your business operations and cash flow.

Banks can freeze your account for reasons like suspicious activity, security measures, or outstanding debts. When this happens, contacting your bank is the first step. 

Understanding why banks freeze your account will help you take the right steps to unfreeze it.