New York City Debt Collection Defense Attorney

Bank Account Frozen From a New York Judgment (but you live outside NY)? Big Win for Consumers where "Separate Entity Rule" Voided Such a Bank Restraint

Many out-of-state clients panic upon discovering their bank accounts frozen due to a NY default judgment. Is this legal? In Lease Finance Group, LLC v. Friske, a NY judge held that the separate entity rule requires service on the bank branch where the consumer banks.

Lawyers for New York judgment creditors have been freezing debtor bank accounts located out of state. They operated under the assumption that a past case called Koehler permits seizing out-of-state assets as long as New York courts have jurisdiction over the bank. These lawyers presumed Koehler[1] overruled New York's separate entity rule, which considers bank branches as distinct institutions. However, a recent case indicates this assumption was incorrect.

The Separate Entity Rule Reaffirmed: A Victory for Consumers

In Lease Finance Group, LLC v. Friske,[2] salvation comes to consumers and the collection-defense bar.

In Friske, the collectors served a restraining notice on a Wells Fargo branch in Pennsylvania while the debtor lived in Georgia. The judgment was entered in New York.

Relying on a New York Appeals case,[3] Judge d'Auguste of New York Civil Court held that the separate entity rule required service of the restraining notice on the bank branch where the consumer actually banks; In this case, Georgia.

There is an exception to the separate entity rule "due to the advent of high-speed computers and sophisticated communications equipment" such that "service of a restraining order upon a bank's main branch is adequate." The exception is limited to the following circumstances:

  • The restraining notice is served on the bank's main office;
  • The main office and the branches where the accounts in question are maintained are within the same jurisdiction; and
  • The bank branches are connected to the main office by high-speed computers and are under centralized control.

Applied here, Georgia is not in the same jurisdiction as Pennsylvania, so the separate entity rule exception does not apply. The failure to serve the Georgia branch with the restraining notice voided the restraining notice.

The court noted that New York's highest court recently affirmed the separate entity rule as applied to bank accounts in foreign countries (see that blog here: Creditors May Not Seize Foreign Bank Account Through U.S. Branches). However, that case did not address the issue concerning domestic bank branches.

Judge d'Auguste found controlling precedential value in Nat'l Union Fire Ins. (footnote 2) and applied the separate entity rule to domestic bank branches.

How Creditor Restraining Notices Freeze Bank Accounts

A restraining notice in the context of consumer bank accounts is a legal mechanism creditors use to temporarily freeze or "restrain" a debtor's bank account. It's typically used after a judgment has been made in favor of the creditor, allowing them to secure funds from the debtor's account to satisfy the debt.

The notice is served on the bank, not the consumer and it prevents the bank from allowing the debtor to withdraw funds or make payments from the restrained account up to the amount of the judgment. However, certain protections and exemptions are in place to ensure that a debtor has access to some funds for necessary living expenses.

For example, under the New York Civil Practice Law and Rules (CPLR) Section 5222, certain funds, including a minimum balance or funds derived from specific sources like Social Security or disability payments, cannot be restrained. This protection ensures the consumer can still meet essential financial obligations despite the debt recovery process. Consumers need to understand these rights and potentially seek legal counsel if a restraining notice is issued against their bank account.

Graphic displays the New York Exemption Claim form as presented by Jesse Langel, Esq., viewable on both a desktop and a laptop screen, illustrating the accessible and user-friendly digital format available for purchase on Etsy for defending against bank restraints.

Summary of CPLR § 5222. Restraining Notice

The below summary of CPLR § 5222 provides a concise and easy-to-understand overview of the actual statute, composed of legal terminology and statutory language that can often be difficult to decipher for those without a legal background.

CPLR § 5222 governs the issuance and service of restraining notices and the specifics regarding the implications for judgment debtors and those who hold the debtor's property.

(a) Restraining Notice Issuance and Service: A restraining notice intended to freeze a bank account is issued by the court clerk, the creditor's attorney, or the support collection unit. This notice is served to anyone except the debtor's employer when the property is wages or salary. It's served personally, by registered or certified mail, regular mail, or electronic means. It includes details of the judgment or order and a warning about potential contempt of court penalties for non-compliance. An amended notice is issued if there's an interest rate change during a restraint.

(b) Effect of Restraint and Duration: Upon receiving the notice, a debtor is prohibited from transferring or interfering with any property they own, unless directed by the court or sheriff, until the debt is settled or the order vacated. Any property or debt in the debtor's possession becomes subject to the notice. Those who are not the debtor but are served with the notice should not transfer or dispose of any property or money involved until the judgment is satisfied, vacated, or one-year passes.

(c) Subsequent Notice: A court's permission is required to serve more than one restraining notice on the same person for the same judgment. A creditor cannot serve more than two notices per year on a natural person's bank account. If the interest rate changes during a restraint, an amended notice is issued without court permission.

(d) Notice to Judgment Debtor or Obligor: If the debtor hasn't received a notice within a year before the restraining notice, a copy of the restraining notice, along with the notice to the debtor, should be mailed to them within four days of the service of the restraining notice.

(e) Content of Notice: The notice to the debtor should inform them that their money or property may have been taken or held to satisfy a judgment and provide a list of money or property types exempt from being taken to satisfy judgments.

(f) Definition of "Order": An "order" in this context refers to a directive from a competent court requiring payment of support, alimony, or maintenance upon which a "default" has been established.

(g) Electronic Restraining Notice: With written consent, a restraining notice can be served in an electronic format, such as magnetic tape. However, notice to the debtor must still be given in written form.

(h) Effect on Accounts Receiving Exempt Payments: If an account has received direct deposits of statutorily exempt payments within the 45 days prior to the notice, the bank should not restrain $2,500.00 in the debtor's account. If the account contains less than this amount, the notice is void.

(i) Effect on Debtor's Banking Account: A restraining notice should not apply to amounts equal to or less than 240 times the federal or state minimum hourly wage, whichever is greater unless a court determines the amount is not necessary for the debtor's reasonable requirements.

(j) Bank Fees for Processing Restraining Notice: If a bank served with a restraining notice cannot lawfully freeze a debtor's account, or a freeze is imposed in violation of any section of this chapter, the bank should not charge the debtor any fee.

(k) State of New York as Creditor Exceptions: The provisions in sections (h), (i), and (j) don't apply when the creditor is the state of New York, its agencies, or municipal corporations, or if the debt being enforced is for child support, spousal support, maintenance or alimony. These exceptions should be clearly stated in the restraining notice.

Friends, if your bank account(s) have been frozen, call us immediately for a consultation.


[1] Koehler v. Bank of Bermuda Ltd.,883 N.Y.S.2d 763 (2009).

[2] Lease Finance Group, LLC v. Fiske, 021127/12, NYLJ 1202681290021, at *1 (Civ., NY, Decided December 9, 2014).

[3] Nat'l Union Fire Ins. Co. of Pittsburgh, Pa. v. Advanced Emp't Concepts, Inc., 269 A.D.2d 101, 101 (1st Dep't 2000).