Can a bank freeze your checking account and use the funds in the account to pay towards a line of credit? We have not had a late payment on the line of credit. They claim they feel we may file bankruptcy, so this is why they have done this. We have outstanding checks that they are not going to pay. We are not overdue on any accounts and are not filing bankruptcy. Is there anything we can do?
Contact the bank and ask that the funds be returned. Assure the bank's lender that you aren't "on the brink," and ask to see the contract language that the bank is interpreting to allow it to set off the funds in your deposit account against your line of credit. You may find that there is language in your loan agreement that gives the bank some pretty broad authority to declare you in default. Often, that language can be pretty subjective.
It looks like your bank feels insecure about your ability to service your debt, and it has made a move to protect its position. It's now incumbent on you to convince the bank that its concerns are unfounded, and that what it has done could serve to make matters worse, rather than better.
Unhappily, when loan disputes like this occur, it sometimes takes legal action to sort matters out. Unless you and the bank can come to an agreement, you may need to start depositing business income into another bank, where it will be more difficult to reach. If your initial conversations with the bank don't prove fruitful, you should contact an attorney who can help you regain some measure of control over the situation.
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Contact the bank and ask that the funds be returned. Assure the bank's lender that you aren't "on the brink," and ask to see the contract language that the bank is interpreting to allow it to set off the funds in your 