Canada bank accounts frozen? Here’s how to act

Posted on 12 October 2023

Written by Chris Galea

If you are already battling unmanageable debt and are living paycheque to paycheque, a frozen bank account is unlikely the most helpful circumstance for you. If you find your Canada bank accounts frozen, it is usually an action taken by creditors as a consequence of not receiving payments on the money you owe them. Where possible, they may try to freeze your bank account in order to encourage you to pay for an outstanding debt that you are behind on. If you find yourself with a frozen bank account, you will not be able to withdraw any money or make transfers until your account is unfrozen. This likely means you will be unable to make other essential payments, including buying groceries, paying rent, and other everyday costs. In this article, we explain what to do if you find your Canada bank accounts frozen and are unsure of what to do next.

Who can freeze your bank accounts?

Freezing a bank account is not the first action that creditors will take. They will begin by calling you and sending mail – if they get no response, they could then move on to freezing your bank account so that you cannot withdraw any money or make transfers until the freeze is cleared. Typically, there are two kinds of creditors who are capable of freezing bank accounts in Canada. They are:

  • Creditors – if you have unpaid debts like credit card debts, personal loans, or payday loans, creditors are able to have your Canada bank accounts frozen. It isn’t as straightforward as simply freezing your bank account, however. First of all, they need to go to court to get a judgement against you to confirm that you owe them money. Once they have a judgement in place, they can apply to the court to freeze your bank account, or choose to pursue a wage garnishment.
  • Canada Revenue Agency (CRA) – the CRA can freeze your bank accounts without the need for a court order. If you owe tax debt and do not have a payment plan in place or another form of debt relief, they could freeze your bank account to force you to deal with your outstanding debts.

As well as being able to freeze your bank account, some creditors can seize money from you via a ‘right of offset’. If you owe a debt to the same bank you have an account with, the bank can take the payment directly out of your account to balance out any overdue payments. This can be done without your permission. Although you are able to keep using your bank account, any money that is deposited into your account is at stake for seizure.

How long can a bank account be frozen in Canada?

There is actually no time limit on how long your bank account can be frozen in Canada. This is especially the case where the CRA is concerned. They can – and will – keep your bank account frozen until your overdue balance is repaid in full. Where creditors requiring a legal judgement are concerned, the time period for which your bank account will remain frozen will last for as long as the court order stands. The court order can even be renewed multiple times by creditors, and so it is really important to address the issue of a frozen bank account as soon as you can.

Why would your bank account be frozen suddenly?

For many Canadians, it can sometimes be a shock when you go to use your bank account and discover it is frozen. Not all creditors (especially the CRA) will warn you when it is going to happen, to prevent you from moving money out of the account. There are a few key reasons as to why you might find your bank account frozen, and some of these will be for reasons outside of your control:

  • Suspected illegal activity – e.g. money laundering, writing bad cheques, etc. Banks will routinely monitor and report any suspicious accounts, and large daily deposits of money will raise suspicions
  • You are a victim of identity fraud
  • You have not made agreed repayments to your creditors, and they seek judgement against you from the courts. Creditors will need to inform you if they are planning this action against you. If you owe debts to the financial institution that your account is held with, your lender might decide to access your account and use your funds as repayment
  • Government request as a consequence of not paying taxes or student loan debts. Where student loan debts are concerned, the government can also seize your tax refund and even pursue a wage garnishment against you

What does a frozen bank account mean for you?

Having a frozen bank account in Canada has a number of frustrating consequences. For this reason, you should try where possible to resolve any actions within your control to avoid it happening. Frozen accounts can mean the following situations arise:

  • Unaccessible funds until the situation is resolved – this means you will not be able to access cash in the account, and any scheduled payments will fail
  • A non-sufficient funds fee if your payments bounce
  • The potential to go into your overdraft for any scheduled payments, with additional fees and interest to cover the temporary shortfall of funds
  • Negative impact on your credit score. The judgement for unpaid debts is likely to remain on your credit report for seven years
  • Potential account closure, if your financial institution suspects that you have been using your account for illegal purposes. If your account closes, you may struggle to have somewhere to put your paycheques

How to unfreeze your bank account

In order to avoid having your Canada bank accounts frozen, it is important to stay up to date with your payments. If, however, you have found yourself with a frozen bank account, there are some steps you can take to unfreeze it:

  • The first thing you should do is speak to your creditors to try and arrange a repayment plan. 
  • If this is not an option for you because of your financial circumstances, you should book a free consultation with a Licensed Insolvency Trustee. Licensed Insolvency Trustees are the only professionals in Canada legally able to file all forms of debt relief
  • Licensed Insolvency Trustees will review your financial circumstances with you to recommend a form of debt relief that either reduces or clears your debts. 
  • In the meantime, you can open a new bank account at a different bank where you do not owe any money. You can ensure that your employer pays you via this account, and transfer across any bills you need to pay from the new account. You can also move money from your old account into this new account, without letting your creditors know about the new account. 
  • For a longer term solution, a consumer proposal is a good way to reduce your debts by up to 80% while allowing you to keep your assets. Bankruptcy is another form of debt relief which will completely clear your unsecured debt. Importantly, both of these options offer complete protection from your creditors via a stay of proceedings. This means that your creditors can no longer call you, threaten you, freeze your bank accounts, or pursue legal action like a wage garnishment against you.

If you have found your Canada bank accounts frozen and are unsure of what to do next, book a free consultation with Spergel. We can help you do what is needed to unfreeze your bank account, and review your financial circumstances to ensure you find a suitable form of debt relief. We have been helping Canadians gain debt relief for over thirty years, and we are here to help you too.

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Chris Galea

Chris Galea

Chris Galea is a Chartered Accountant and Insolvency and Restructuring Professional with over 20 years’ experience as an LIT (Licensed Insolvency Trustee). He is also our resident expert on tax debt, COVID debt, and the region of Saskatchewan, Canada. When he’s not at the office educating people about bankruptcies and consumer proposals, Chris is playing pick-up hockey with his friends, spending time with his family, and learning Spanish!

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