Why Has My Bank Account Been Frozen?
If a creditor has sued you and has obtained a judgment against you, your bank account may be “frozen” to satisfy the judgment. You will receive a letter from your bank informing you that a “restraining notice” was served on the bank and that funds in your account are being held to satisfy the creditor’s judgment against you. By law, the bank is required to restrain double the judgment amount.
How Creditors Obtain Civil Judgments In New York
To serve a restraining notice in New York, a creditor must first obtain a judgment against you. This means that the creditor was awarded a monetary amount by the court. For New York consumers, judgments typically arise from lawsuits to collect credit card debts, past-due medical bills, personal loans, and automobile loans.
Consumer credit judgments in New York are very often awarded by default. This happens when the person being sued fails to respond to the summons. In most debt collection cases, the plaintiff does not even have to obtain a judge’s approval to be awarded a default judgment. This is because under New York law a plaintiff can make an application to the court clerk for a default judgment if the claim is for a sum certain, or for a sum that can by computation be made certain. It is important to seek legal advice if you have had a judgment entered against you. Unpaid judgments in New York can be enforced for 20 years.
Your Rights Under The New York Exempt Income Protection Act
In New York, under a law called the Exempt Income Protection Act (EIPA), certain funds in bank accounts are protected, and judgment creditors are prevented from taking these funds to satisfy a judgment. The EIPA is codified in New York Civil Practice Law and Rules § 5222 and § 5222-a. The following is a list of the most important provisions of the New York Exempt Income Protection Act:
The first $3,840 in any bank account is not subject to restraint. If an account contains an amount equal to, or less than, 90% of $3,840, the account is not restrained and the restraining notice is deemed void. The dollar amount is adjusted in tandem with the minimum wage in New York.
If statutorily exempt payments were made by direct deposit or electronic payment into a bank account, within the 45 days preceding service of the restraining notice, then the first $3,425 in the account is not subject to restraint. If the account contains $3,425 or less, the account is not restrained and the restraining notice is deemed void. Note that this provision in the law has, at least for the time being, been rendered unnecessary due to the increase in the New York State minimum wage and the consequent increase in the exemption for any bank account.
Statutorily exempt payments include the following:
Social Security benefits
Veterans Administration benefits
Supplemental Security Income (SSI)
Disability benefits
Child support
Workers' compensation
Railroad retirement benefits
Public or private pension payments
Unemployment benefits
Public assistance
The above provisions, regarding amounts not subject to restraint, do not apply when:
The state of New York or any of its agencies or municipal corporations is the judgment creditor; or
If the debt being enforced is for child support, spousal support, maintenance or alimony.
For either of these exceptions to apply, the restraining notice must contain the following notice, in 16 point bold type:
“The judgment creditor is the state of New York or any of its agencies or municipal corporations, and/or the debt enforced is for child support, spousal support, maintenance or alimony.”
How to Claim an Exemption in Funds in a New York Bank Account
Judgment debtors in New York, who have had their bank accounts restrained pursuant to a restraining notice, may claim that some or all of the funds in a bank account are exempt from seizure. The following is a list of funds that are deemed to be exempt from seizure in New York:
Social Security benefits
Veterans Administration benefits
Supplemental Security Income (SSI)
Disability benefits
Child support and spousal support
Workers' compensation
Railroad retirement benefits
Public or private pension payments
Unemployment benefits
Public assistance
90% of wages or salary earned in the prior 60 days
New York law provides specific procedures that must be followed to determine if funds in a bank account are exempt. The provisions of the statue are as follows:
When serving a restraining notice on a bank, the judgment creditor must also provide the bank with an exemption notice and two exemption claim forms.
Within two business days of receipt of the restraining notice, the bank must mail the restraining notice, exemption notice, and exemption claim forms to the debtor by first-class mail to the debtor’s last known address.
The judgment debtor must complete the exemption claim forms, sign them under penalty of perjury, and serve them within twenty days of the date postmarked on the correspondence containing the notice and forms. The judgment debtor must serve one completed exemption claim form on the bank and the other on the attorney for the judgment creditor (or directly on the judgment creditor if there is no attorney). The judgment debtor may serve the exemption claim forms in person or by first-class mail.
If you are claiming that funds are exempt, you should include documentary proof with the claim form, such as an award letter from the government, an annual statement from your pension, pay stubs, copies of checks, bank records showing the last two months of account activity, or other papers showing that the money in your bank account is exempt.
The bank must release all funds in the judgment debtor’s account eight days after the date postmarked on the envelope containing the executed exemption claim form mailed to the bank or date of personal delivery to the bank, and the restraint shall be deemed void, unless the judgment creditor interposes an objection to the exemption within that time.
Where the account contains some funds from exempt sources and other funds from unknown sources, the judgment creditor must apply the lowest intermediate balance principle of accounting and instruct the bank to release the exempt money in the account, within seven days of the postmark on the envelope containing the exemption claim form.
A judgment creditor may object to the claim of exemption by filing a motion with the court within eight days after the date postmarked on the envelope containing the executed exemption claim form.
If no claim of exemption is received by the banking institution within twenty-five days after the notice and forms are mailed to the judgment debtor, the funds remain subject to the restraining notice or execution.
After receiving an objection from the judgment creditor within the specified eight-day period, the banking institution shall retain the funds claimed to be exempt for twenty-one days unless otherwise ordered by the court. If the period of twenty-one days expires and the banking institution has not been otherwise ordered by the court, the banking institution shall release the funds to the judgment debtor.
The provisions for claiming exemptions do not apply when:
The state of New York or any of its agencies or municipal corporations is the judgment creditor; or
If the debt being enforced is for child support, spousal support, maintenance or alimony.
For either of these exceptions to apply, the restraining notice must contain the following notice, in sixteen point bold type:
“The judgment creditor is the state of New York or any of its agencies or municipal corporations, and/or the debt enforced is for child support, spousal support, maintenance or alimony.”
If funds in a bank account are not deemed to be exempt or the debtor does not claim an exemption, the creditor’s attorney will serve an execution on the sheriff’s office or a New York City Marshal, directing them to levy on the bank account. The sheriff will then make a demand on the bank to turn over the funds in the account. After the sheriff or marshal has obtained the funds, they will then turn over the amount collected to the creditor’s attorney. The sheriff or marshal will also add a 5% poundage fee to the amount necessary to satisfy the judgment.
Banks will not turn over funds held in a joint account without a court order. A court order is necessary to determine how much, if any, of the money in the account belongs to the debtor. In such situations, the judgment creditor must file a “turnover” proceeding in the court that issued the judgment. The bank and the joint account holder are named as respondents in the proceeding.The restraining notice is effective for one year. If the funds in your account have not been turned over to the sheriff within the year, then the restraining notice expires and you will be able to access the account.
Remedies For Frozen Bank Accounts In New York
Debtors who have had their bank accounts frozen in New York have three options to protect the funds in their accounts.
If some or all of the funds in the account are exempt, follow the above procedure to claim the exemption.
Vacate the judgment, if the judgment was obtained on default. This is done by filing an order to show cause in the court that issued the judgment. There are various grounds to vacate a judgment. The most common is that the debtor was not properly served with process, or the debtor has a meritorious defense and did not receive the summons in time to defend the action. If the judgment is vacated, the account will be released and any money seized will be returned.
File for bankruptcy. If the judgment is large or you have other debts, you may want to consider filing for bankruptcy. Once a bankruptcy petition is filed, your bank accounts must be released. Under certain circumstances, funds of $600 or more that have been seized from your bank account can be recovered if you file for bankruptcy within ninety (90) days from the date that the money was seized.
Debtors Residing Outside of New York State
Default judgments are often entered against debtors who reside outside of New York State. This may be because the debtor had previously lived in New York and subsequently moved out of state; or because a contract or agreement provides that New York is the jurisdiction in which legal actions will be brought, regardless of where the debtor resides (note that this is generally not allowed in consumer credit cases, i.e. credit card lawsuits).
Can a judgment creditor restrain a bank account belonging to a resident of another state? The law on this is not crystal clear. On the one hand, the 2009 decision by the New York State Court of Appeals in Koehler v. Bank of Bermuda allows judgment creditors to restrain bank accounts belonging to out-of-state debtors if the account is in a bank with a branch in New York state. (This only applies to judgments that have been entered in New York state.) However, a line of appellate division cases in New York has upheld what is known as the “separate entity rule”, which essentially holds that every bank branch is a separate entity and limits the ability of a judgment creditor to seize an out of state bank account by serving a New York branch of the bank. These cases are very fact specific, and it is critical that you consult with a New York attorney that is experienced with these issues.
If you are aware that a judgment has been entered against you in New York, and you live out of state, you should keep your money in a local bank that does not maintain a branch or an office in New York. However, keep in mind that the New York judgment can be entered in the state in which you reside, although the specifics of how this is done will depend on the laws of the state that you live in.
Call for a Free Consultation
Andrew M. Doktofsky can assist you with default judgments and frozen bank accounts. Call (631) 673-9600, or submit the contact form below, for a free consultation regarding cases in Suffolk County, Nassau County, or New York City.
Andrew M. Doktofsky P.C. is a debt relief agency. I help people file for bankruptcy relief under the Bankruptcy Code.