Why Do Credit Unions Freeze Accounts?

by Jack Ori ; Updated July 27, 2017

Credit unions are a popular alternative to banks for people who work in certain professions. Credit unions allow members to deposit money into both checking and savings accounts. Like a bank, the credit union invests income to provide interest for account holders. Most credit unions require you to be a member of a particular profession or an employee of a particular company to join. Credit unions follow the same rules banks do regarding the freezing of accounts.

Bankruptcy Filing

If you file for bankruptcy and you have a secured loan with a credit union, the credit union may freeze your account, according to the Bankruptcy 7-13 website. The credit union may do this without penalty if you notify it that you intend to file for bankruptcy. The credit union can attempt to recover some of the money it loaned you if you have not yet filed for bankruptcy. After you file for bankruptcy, you can appeal to the bankruptcy court to compel the credit union to release its hold on your account.

Suspicious Activity

If there is suspicious activity on your account, the credit union can freeze the account until it has proved to its satisfaction that no illegal activity has occurred. Credit unions commonly do this if you make an unusually large purchase using your debit card. This is done to protect you against fraud. The credit union may contact you and ask you to verify charges against your account before unfreezing it. If the credit union suspects illegal activity, it can freeze the account pending an investigation by law enforcement. This might occur if you deposit an usually large amount of money, and the credit union suspects it was obtained illegally.

Death of Owner

If an account owner dies, a credit union may freeze the owner's account to protect the account from identity thieves. Some thieves attempt to steal account numbers from recently deceased people, because the owner is no longer available to report the fraud to the credit union. Freezing the account makes it more difficult for thieves to do this. Credit unions may also freeze such accounts instead of closing them because money remaining in the account will eventually go to heirs.

Garnishment

If a debtor defaults on a loan, his creditor can sue the debtor for the amount owed and obtain a court order to garnish funds from a bank or credit union account. Typically, after getting an order of garnishment, the creditor contacts the credit union. The credit union must freeze the debtor's account up to the amount of the judgment. After 21 days, the credit union transfers the frozen funds to the creditor's account. The creditor usually does not inform the debtor of the impending freeze until after it is implemented to prevent the debtor from withdrawing all his money from the credit union to avoid paying the judgment.

About the Author

Jack Ori has been a writer since 2009. He has worked with clients in the legal, financial and nonprofit industries, as well as contributed self-help articles to various publications.