Bill Collector Threatens to “Freeze” Checking Account Over Disputed Debts - Is He Blowing Smoke or Telling the Truth?

I received this question from a reader of my Atlanta Bankruptcy blog. It raises the issue of what collection agencies can do and what you can do to protect yourself.

I am having a problem with a collection agency over a debt that I cosigned with my exhusband on. I am currently waiting on debt validation papers. However they have called me and said that they will freeze all of my bank account. My minor child has a checking account that I am on. Can they freeze her account too?

Here is my response: Firstly, I am not aware of any process in which a private debt collector can “freeze” your bank account if there is no judgment filed against you. The only exceptions to this would be for some student loan debts, some tax debts and child support/alimony type of debt.

Assuming that we are talking about credit card or other similar type of debt, I think that the collection agency is blowing smoke when they say that they can freeze your accounts. If you speak to them again, I would ask for clarification on this freeze - ask them to put it in writing to you and ask the collector to identify himself and explain it slowly as you are recording the conversation for possible use in litigation. My guess is that the freeze threat will go away very quickly.

As a co-signer, however, you do have potential liability. If the creditor sues you as a co-signer and obtains a judgment, it can go after any asset it finds. Depending on where you live, your joint account with your child is at risk.

There may be different kinds of bank accounts that would work better in this situation - for example, you might be able to set up a bank account for your minor child in which you are the trustee, but not a co-owner. This type of arrangement would most likely work for future deposits, but you could have some issues with the funds currently in that account. Most States have fraudulent transfer rules that allow a creditor to reverse transfers of assets made in anticipation of litigation.

This is a situation where you may want to seek counsel - first to see if you have an FDCPA action against the collector for misrepresenting his power to freeze your account, and second to determine what risk you have if you change the account structure for your child’s account.