Bank Account Frozen? How to Get Access to Exempt Money

New York statute shields select funds from creditor attachment, even when debt obligations remain unpaid. These legal "exemptions" protect essential income required for basic living needs. Generally, the exemptions apply to the following:

• 90% of any wages earned in the last 60 days
• Government benefits (federal and state)
• Spousal and child support payments[1]
• Limited payroll to cover recent basic necessities

To fully understand exemption rules and maximally protect eligible funds from creditor account freezes, read our accompanying post: "In New York, what personal property is exempt from Creditors? This outlines the complete list of exemptions and the legal process to claim them successfully when funds are at risk.

The Initial Steps When Bank Accounts Are Frozen

Before a creditor can freeze funds in a bank account, they must properly complete several legal forms. First, a restraining notice is served to the bank stating intent to attach the assets for a debt owed. This notice must include two exemption claim forms for the debtor:

1. A bank-addressed form allowing exemptions to block or limit the asset restraint
2. An attorney-addressed form for exemptions to apply directly to the creditor

If a creditor's restraining notice excludes these exemption forms, the bank has no obligation to freeze any funds.

Upon receiving a fully compliant notice, the bank now must forward copies to the debtor within two business days. This communication explains the creditor seeks account funds to satisfy a debt. It also clarifies the account may soon be frozen unless specific documented exemptions apply legally blocking the creditor or limiting restraint amounts. The included exemption forms provide the process to submit a claim.

The Step-by-Step Process for Claiming Exemptions

When a creditor freezes funds in a bank account through a restraining notice, the bank has two business days to forward exemption claim forms to the debtor. To claim exemptions, the debtor must complete and return these forms within 20 days, including any documentation showing the funds are exempt. If the exemption applies to the entire account balance, the creditor has eight days to object, or the restraint is voided. For partial exemptions, the creditor has seven days to calculate the non-exempt amount and instruct the bank to release the remaining funds. If the creditor objects, a court hearing is held within seven days, and a ruling is issued within five days. The debtor's exemption form and documentation constitute prima facie evidence for upholding the exemption. Ultimately, the bank will release or retain funds as directed by the court.

Key Documentation to Support Your Claim

When submitting the exemption forms, include documentation like benefit award letters, pay stubs, pension statements or bank notices. This shows the funds are exempt, and the creditor must release the account within the timeframe outlined above. Carefully gather and provide all relevant proof upfront to avoid delays. If exemptions apply to only part of the money, detail the exact non-exempt amount so the creditor can quickly calculate and unfreeze the rest per the court's expedited levy process.

The Expedited Process if Creditors Dispute Your Exemption

If a creditor disputes the validity of your exemption claim, they must file a formal objection with the court within 8 days and serve you a copy. This triggers an expedited legal process to resolve the dispute. A hearing will occur in 7 days, where you can present the documentation initially submitted with your exemption forms as prima facie evidence of their validity. The judge will issue a ruling within 5 days of the hearing. If the creditor cannot prove the funds are rightfully eligible for attachment, the court upholds your exemption by law. This quick legal resolution aims to limit financial harm from improper account freezes.

To see this rule in action, see our prior post: When your bank account is frozen, learn what your exemptions are and how to claim them.

Case 1: Due Process Requires Notice and Opportunity to Claim Exemptions Before Bank Account Restraint

A judgment creditor served a restraining notice on a bank but the bank failed to provide the judgment debtor with required notices about potential exemptions within two business days as required by law. The court held this violated due process rights but declined to fully vacate the restraint, instead requiring proper notices be provided to allow claiming of exemptions before any turnover of funds.

Key Legal Principles:

1. Under CPLR 5222-a, banks must provide judgment debtors notice and opportunity to claim exemptions within two business days of receiving a restraining notice.
2. The Exempt Income Protection Act requires banks to provide notice regardless of whether enforcement is by restraining notice or levy.
3. Courts have broad equitable powers under CPLR 5240 to modify enforcement procedures to balance creditors' and debtors' rights.

Conclusion: The case established that failure to provide statutorily required notices about exemption rights violates due process, but courts will fashion remedies that protect both creditor and debtor interests rather than automatically void the restraint. Critical facts include that the creditor properly served the bank but the bank failed to forward notices to the debtor within two days.

Citation: Distressed Holdings, LLC v Ehrler, 113 AD3d 111 (2d Dept 2013).

Case 2: Judgment Creditor Bears Burden of Proving Funds Are Non-Exempt Under EIPA Through Substantial Evidence

A judgment creditor sought to deny a debtor's claim that funds in their savings account were exempt as unemployment benefits. The court held that under the Exempt Income Protection Act (EIPA), a debtor's executed exemption claim form creates a presumption of exemption that must be rebutted by the creditor through substantial evidence. Critical facts showed that $7,486 of unemployment benefits had been transferred into the savings account, and no further deposits were made afterward.

Key Legal Principles:

1. Under CPLR 5222-a, the judgment creditor bears the burden of proving funds are not exempt through substantial evidence at an exemption hearing.
2. A debtor's executed exemption claim form alone constitutes prima facie evidence that claimed funds are exempt, with no additional documentation required.
3. When an account contains both exempt and non-exempt funds, the "lowest intermediate balance principle" applies, treating exempt funds as the last to leave the account.

Conclusion: The case establishes that judgment creditors must present concrete evidence, not mere speculation, to overcome the presumption created by an exemption claim form. The creditor's failure to provide bank statements or other substantive proof that funds came from non-exempt sources meant they failed to meet their burden.

Citation: U.S. Equities Corp. v Casellas, 72 Misc 3d 874 (Civ Ct, NY County 2021).

Case 3: Evidentiary Hearing Required When Judgment Debtor's Exemption Claim Lacks Sufficient Documentation

A judgment creditor challenged a debtor's claim that bank funds were exempt as income earned within 60 days. While the debtor provided pay stubs, they failed to show where checks were deposited, and bank records indicated deposits from other sources. The court held that an evidentiary hearing was necessary to determine the validity of the exemption claim, as the documentation alone was insufficient to establish the exemption as a matter of law.

Key Legal Principles:

1. Due process requires judgment creditors have a meaningful opportunity to contest exemption claims through evidentiary hearings when documentation is insufficient.
2. An exemption claim form alone cannot automatically convert non-exempt funds to exempt funds - evidence of the source and timing of deposits is required.
3. While the exemption claim form is prima facie evidence of exemption, judgment creditors must have the opportunity to question debtors about the source and use of funds.

Conclusion: The case establishes that when a judgment debtor provides incomplete documentation of exempt status, courts should hold evidentiary hearings rather than rely solely on the exemption claim form, allowing creditors to examine the source and timing of deposits while still maintaining the burden of proof on the creditor.

Citation: Midland Funding LLC v Singleton, 34 Misc 3d 798, 935 NYS2d 844 (Dist Ct, Nassau County 2011).

Case 4: EIPA Exemptions Apply Separately to Each Bank Account, Not Aggregate Balance

A bank improperly aggregated multiple accounts when calculating statutory exemptions under the Exempt Income Protection Act (EIPA), issuing a single $1,740 exemption check rather than applying the exemption to each account separately. The plaintiffs' lawsuit was properly converted to a special proceeding after the Court of Appeals ruled that EIPA violations must be pursued under CPLR Article 52. The case turned on interpretation of whether EIPA's $1,740 exemption applied per account or to total deposits.

Key Legal Principles:

1. EIPA's statutory exemption amount applies separately to each individual account, not to the aggregate balance across all accounts.
2. Courts may convert an improperly filed action into a special proceeding when the relief sought is available in the proper form.
3. Legislative history should be examined when statutory language is ambiguous to determine legislative intent.

Conclusion: The case establishes that banks must apply EIPA's exemption thresholds separately to each account rather than combining balances, and that while EIPA violations must be pursued through special proceedings, courts can convert improperly filed actions rather than dismissing them.

Citation: Jackson v Bank of Am., N.A., 149 AD3d 815, 53 NYS3d 71 (2d Dept 2017) (holding EIPA's $1,740 exemption applies separately to each account rather than aggregate balance across accounts; legislative history supported per-account interpretation where statutory language was ambiguous; action properly converted to special proceeding to determine rights under CPLR Article 52).

Case 5: Strict Compliance Required for Service of EIPA Exemption Challenge Motion

A judgment creditor failed to properly serve its motion challenging a claimed exemption under the Exempt Income Protection Act (EIPA) by not serving the bank and not mailing notice to the judgment debtor's current address in Greece as provided on the exemption claim form. The court dismissed the motion for lack of jurisdiction, noting that the debtor had provided evidence that the account contained only exempt Social Security deposits.

Key Legal Principles:

1. EIPA motions challenging exemption claims must be served on both the banking institution and the judgment debtor at the address specified in the exemption claim form.
2. Statutory time periods and procedures under CPLR 5222-a must be strictly construed.
3. The purpose of requiring current address on exemption claim forms is to ensure due process by providing proper notice to debtors of proceedings affecting their property.

Conclusion: The case establishes that courts will strictly enforce EIPA's procedural requirements for challenging exemption claims, requiring precise compliance with service requirements to protect judgment debtors' due process rights.

Citation: Midland Funding LLC v Digonis, 25 Misc 3d 935, 889 NYS2d 415 (Dist Ct, Nassau County 2009) (dismissing creditor's motion challenging exemption claim for failure to serve bank and debtor at current address provided on exemption form; strict compliance with EIPA service requirements necessary where debtor showed account contained only exempt Social Security deposits).

Case 6: Creditor's Failure to Release Exempt Wage Deposits Results in Statutory Penalties Under EIPA

A creditor refused to release restrained bank funds despite receiving both bank verification and debtor documentation showing the account contained exempt wage deposits. The court imposed a $1,000 penalty, costs, and attorney fees after finding the creditor disregarded its obligations under EIPA by neither releasing funds nor filing a timely objection. The creditor had improperly claimed the exemption form was untimely, ignoring evidence that the bank took 12 days to forward required notices to the debtor.

Key Legal Principles:

1. The 20-day period for filing exemption claims runs from the postmark date of the bank's notice to the debtor, not the date of the creditor's restraining notice.
2. Information from the bank itself about exempt deposits qualifies as proof under CPLR 5222-a(c)(4)'s requirements.
3. Creditors must either release funds or file a motion objecting to the exemption when provided with proof of exempt status - they cannot unilaterally decide to maintain the restraint.

Conclusion: The case establishes that creditors face statutory penalties for disregarding EIPA's procedures and maintaining account restraints after receiving proof of exempt funds, whether that proof comes from the bank or the debtor.

Citation: LR Credit 22, LLC v Eggleston, 37 Misc 3d 653, 951 NYS2d 658 (City Ct, Jamestown 2012) (imposing statutory penalties where creditor maintained restraint despite bank verification and account statements showing deposits were exempt wages; creditor's claim that exemption form was untimely rejected since 20-day period ran from bank's forwarding of notice, not original restraint date).

Case 7: New York Court Upholds Separate Entity Rule: Service of Restraining Notice on NY Bank Branch Cannot Reach Foreign Accounts

A judgment creditor served a restraining notice on a bank's Manhattan branch seeking to freeze accounts held in Canada. The court dismissed the proceeding, finding that despite modern banking technology and recent case law expanding courts' reach over foreign assets, the separate entity rule remains valid law in New York, requiring service on the specific branch where an account is maintained.

Key Legal Principles:

1. Under the separate entity rule, each bank branch is treated as a separate entity for purposes of attachment and garnishment, requiring service on the specific branch where the account is maintained
2. A bank's voluntary freezing of foreign accounts does not constitute waiver of the separate entity rule defense
3. When a judgment is satisfied, no damages are recoverable for prior violations of restraining notices, and attorney's fees are not recoverable as "costs"

Conclusion: Despite technological advances and evolving case law on courts' jurisdiction over foreign assets, the separate entity rule continues to protect banks from having to freeze foreign accounts based on restraining notices served on New York branches, absent clear direction otherwise from appellate courts.

Citation: Global Technology, Inc. v Royal Bank of Canada, 34 Misc 3d 1209(A), 943 NYS2d 791 (Sup Ct, NY County 2012).