Having unpaid debt can be overwhelming, but letting it go to the point of collections and beyond can lead to serious consequences, like having your accounts frozen by a creditor.
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According to Erica Sandberg, a consumer finance expert at BadCredit.org, if that outcome happens, however, don’t panic — there are some immediate steps you can take.
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It Shouldn’t Come as a Surprise
First, while it is alarming to have any financial account frozen, you should have been informed of it coming, Sandberg said.
“Very few creditors can actually freeze your account without prior steps. For example, if you owed money to a credit card company or collection agency, they would have to sue you in a court of law, first win the case and then be granted a judgement.”
This is why it’s important to try to address debt issues before you get to the account freezing stage, Sandberg urged. “Work out a payment plan, go to credit counseling, repackage your debt with a new loan or a credit card, modify your budget or sell things to pay off what you owe.”
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Determine the Reason
The very first thing you should do is figure out why your account has been frozen, Sandberg said. “Who do you owe, how much and determine what you can do to make financial amends.” Remember that all a creditor wants is the money — it’s not personal.
If you’re completely flummoxed, she said, ask your bank. “They will know who initiated the freeze and will provide you with that information.”
Don’t Try To Claim Funds Too Quickly
A lien on a bank account is a legal action, so if you think you can just go and try to claim your funds before you have all the information, “You could get into more trouble. Before you do anything, get legal advice,” Sandberg said.
There are usually exceptions made for funds from Social Security payments, disability insurance and unemployment benefits. Retirement funds may also be protected against liens and levies but be sure to double check.
Respond To Court Notices Promptly
Of utmost importance is responding to court notices promptly, Sandberg said. “If you don’t appear in court by the date listed on the notice, chances are you will lose by default.”
Going to court may seem scary, but it’s also your opportunity to explain “your side of the story,” she said.
“If the creditor asks for a certain remedy so they will get paid, they may be granted that right without you having the opportunity to work out something else,” she explained.
Know the Limits
While a creditor may be entitled to some money from your account, it’s helpful to know the limits on how much they can claim from your income, Sandberg said. For example, child support arrears are typically limited to around 50% of your disposable earnings; a creditor that has sued you may seize up to 25% and the federal government can only take 15% of outstanding loan debt through federal loans.
Reroute Any Bills
If you have automated bills coming out of a frozen account, be sure to make necessary changes so that you don’t also incur late payments or fees on any unpaid bills.
“If your paychecks are deposited into your account electronically, you probably can request a paper check. What you should never do, however, is enter fraud territory. Be careful.”
Get Support
Even if you knew a frozen account situation was coming, they can still be nerve-racking to deal with. Sandberg suggested, “Do not go into this alone or uneducated. If you can’t afford an attorney, look for free legal advice in your area.”
You can also turn to credit counseling agencies where counselors are trained in basic legal matters and can very often offer invaluable support and resources.
Most importantly, take all the steps you need to get yourself out of the debt situation so you can reclaim your accounts and move forward in rebuilding your financial situation.
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This article originally appeared on GOBankingRates.com: 6 Things To Do Right Now If a Creditor Freezes Your Accounts
