On the first day, find out what was served on your bank to freeze it, get copies of that document from your bank, pay payroll from an account that is not restrained, and contact a lawyer. To unfreeze the account, you need a court to lift or limit the freeze, or you negotiate a release with the MCA.
Whether the lender could freeze your account at all is covered in the legal paths an MCA funder needs before it can freeze an account.
Who actually froze my business bank account?
Most often, the MCA freezes an account by serving legal process on your bank, via their lawyer, after obtaining judgment against you. Sometimes a bank will restrict an account on its own, under the deposit agreement, after receiving a letter from a funder. Rule out a tax levy or another creditor. Each type unfreezes differently.
| Type of Freeze | Issued by | Details re: freeze |
|---|
| New York Restraining Notice | Creditor’s attorney or court clerk, not a judge | Lasts 1 year unless satisfied or vacated, and restrains new deposits up to twice the amount owed. |
| New York Levy by Execution | Sheriff or Marshal | Bank must turn over funds to the Sheriff or Marshal. Expires in 90 days, except as to funds turned over. |
| New York Order of Attachment before judgment | Court, often without notice to the borrower | Must be confirmed within 5 days of the levy or it may be vacated. |
| Pennsylvania Writ of Execution on Confessed Judgment | Funder on its own, pursuant to the Confessed Judgment | If served without notice, the petition included in the service packet gets you a hearing within 3 business days. |
| The bank’s own hold | Your bank, under the deposit agreement | No court process, so there’s nothing for a judge to vacate. |
What paperwork should I get from my bank?
Ask the bank’s legal or levy department, in writing, for the paperwork served, the court, index or docket number, judgment amount, amount held, date served, serving attorney, and accounts affected. Check your mail for a copy too, which may change what you can do.
If a New York bank is freezing more than twice the amount due, ask it to release the excess, as the restraining notice does not attach to the excess under CPLR 5222(b). For a New York confessed judgment, check whether you have a place of business in the county where it was filed, as that is where a business “resides” under CPLR 3218. For an order of attachment, find the date of the levy, as the attachment must be confirmed within 5 days or it can be vacated under CPLR 6211(b).
How do I pay payroll if my business bank account is frozen by an MCA?
Most likely, you will pay payroll out of new receipts, from a new account. There is no payroll exemption for LLCs or corporations, and New York’s exemption notice covers only accounts of a natural person, so keep new deposits out of the frozen account. Can the MCA get to your second bank account? See what an MCA company can reach in your other accounts.
If a restraining notice was served on you, you cannot transfer property in which you have an interest, and willful disobedience is punishable as a contempt of court under CPLR 5251.
Taxes withheld from your employees are held in trust for the United States under 26 USC 7501, and the responsible person who willfully fails to pay them over is personally liable for a penalty equal to the taxes withheld under 26 USC 6672. If those funds are frozen, tell the bank and the funder’s attorney in writing. Late wages may expose you to liquidated damages of 100% of the unpaid wages under New York Labor Law Section 198. Warn employees before checks bounce, and ask your attorney about a payroll “carve out” under CPLR 5240, in the court’s discretion.
How do I get a frozen business account released?
You must either vacate or limit the freeze through a court or settle in a manner acceptable to the bank. Show your papers to your lawyer before calling the funder, since a same-day forbearance might come with a new confession of judgment.
If the freeze came from Pennsylvania
If the funder does not give you notice before serving the writ on your bank, it must include a petition form for a hearing under Pa.R.C.P. 2958.3. File it with the Sheriff and you are entitled to a hearing within 3 business days, with execution stayed until then. That hearing only asks whether you knowingly waived notice. You can also petition to strike or open the judgment under Pa.R.C.P. 2959 within 30 days of service of the writ, though the levy stays in place meanwhile unless the court orders a stay.
If the freeze came from New York
New York’s Appellate Courts have held that the proper way to vacate a confessed judgment is a separate “plenary action.” Emergency relief comes by order to show cause or a CPLR 5240 motion in the judgment action. See our discussion on how to get a restraining notice lifted.
Where bankruptcy fits
Bankruptcy stops the funder from enforcing the judgment in any new way, but the Supreme Court held in City of Chicago v. Fulton that holding funds already restrained does not violate the automatic stay, so you would need to demand “turnover” of them. If you are a limited liability company, bankruptcy will not stop enforcement of the personal guaranty.
What does a settlement need to say for the bank to release the money?
Get the release in writing, signed by the attorney who served the restraint and including the index number. It should be sent to each bank served on a stated date, state in dollar amounts what happens to funds already held, require a satisfaction or vacatur of the judgment on completion, and address the personal guaranty. Do not sign a new confession of judgment unless your lawyer has seen it.
Frequently Asked Questions
Can I open a new bank account while my business account is frozen?
Yes, to receive money and pay expenses, so long as you are not sweeping remaining funds from the existing account and no restraining notice was served on your business. Show the restraining notice to your lawyer first.
Will the bank freeze new money I deposit into my existing account?
In New York, yes, new deposits are restrained until the bank holds twice the amount due on the judgment.
Will the bank account freeze go away on its own?
In New York, a restraining notice is valid for one year from service on the bank unless the judgment is satisfied or vacated.
Can the funder freeze my account again after it’s released?
In New York, the funder needs leave of court to serve a second restraining notice on the same bank for the same judgment.