Can a Credit Union Freeze Your Checking Account for Past Due Debt?

Can a Credit Union Freeze Your Checking Account for Past Due Debt?
••• Jupiterimages/ Images

A creditor has a right to file a lawsuit against a debtor if he defaults on a loan or a credit card. When a creditor receives a court judgment confirming the debt, she can attempt to collect it by freezing the debtor's bank accounts. However, in some cases a creditor can legally take the funds without obtaining a judgment.

Placing a Freeze on the Account

A creditor, a credit union in your case, can place a freeze on your account if you owe payments on a loan or a credit card. A creditor doesn't place a freeze the day after the payment is past due. Usually you have two or three months to catch up on payments or make payment arrangements. If you don't make any payments and don't negotiate payment arrangements, the credit union will file a lawsuit against you to obtain a judgment. It will then present judgment papers to your primary financial institution to place a freeze on your accounts.

Right to Setoff

If the credit union where you have the debt is your primary financial institution, meaning it holds your checking and savings accounts, it may freeze your balances without filing a lawsuit. The credit union has a right to withdraw a past due debt payment from your account without your consent and without a court hearing. However, it may not take any funds from your account that are exempt from collection by law. If you negotiate a new payment schedule with the credit union, ask for the arrangement in writing and request that the credit union does not setoff as long as you are following the new schedule.

Exempt Funds

Your credit union cannot take any part of exempt money, which includes Social Security, disability, retirement, public and private pensions, veteran's benefits, unemployment, worker's compensation, public assistance, alimony, and spousal and child support. Also, if you have a joint account holder and he is not on the loan, his funds are exempt from collection. If a credit union freezes any of these funds, you have a right to file an exemption claim and receive access to the money.

Seeking Legal Assistance

If you believe that the credit union wrongfully froze the accounts or took the money, you can contact a qualified attorney. The court may vacate the judgment against you if you believe that you don't owe the debt and the judgment is wrongfully entered against you, or you have a good excuse for not attending a judgment hearing if there was one. An attorney will also help you gain access to the exempt funds if you have any in your accounts.