By: Money Navigator Research Team
Last Reviewed: 13/01/2026
FACT CHECKED
Quick Summary
A frozen business bank account does not stop cardholders from raising chargebacks. Chargebacks are processed through card scheme rules (Visa/Mastercard/Amex) and the acquiring/payment processor chain, so disputes can continue even while your bank account can’t move money normally.
What changes is how the loss is funded and where the money is held. Many processors debit the disputed amount from your processor balance (or hold it), apply reserves, or offset future settlements if they can’t collect from a frozen bank account.
The practical impact is often a cash-flow squeeze: sales can continue, but disputed amounts may be held back, refunds can become harder to fund, and payout delays or reserves may increase.
This article is educational and not financial advice.
What a chargeback is (and what it isn’t)
A chargeback is a card-scheme dispute process that lets a cardholder challenge a card payment through their card issuer. It is not the same as a refund (a voluntary merchant action), and it is not the same as Section 75 (a legal route that can apply to credit card purchases in specific circumstances).
For UK consumer-facing definitions, the Financial Ombudsman Service explanation of chargeback is a helpful baseline, including that chargeback rules depend on the card scheme and require evidence. See the Financial Ombudsman Service overview of chargeback and Section 75.
For the legal route on credit cards, Section 75 is set out in legislation (and is separate to chargeback). See Consumer Credit Act 1974 – Section 75.
Does a bank freeze stop chargebacks?
No. A bank freeze affects your bank account rails (what can be paid in/out of the account under restriction). Chargebacks run through card scheme rails and the acquiring/payment processing chain, so they can still be initiated, progressed, and decided while your bank account is frozen.
Chargeback timelines and evidence rules are set by the card schemes and issuer/acquirer processes. Industry guidance like UK Finance’s chargeback and Section 75 explainer and scheme documentation such as Visa’s Dispute Management Guidelines for Merchants and Mastercard’s Chargeback Guide (Merchant Edition) outlines the dispute framework and how disputes flow back to merchants via acquirers.
What actually happens when a chargeback hits during a freeze
Step 1: The cardholder’s issuer raises a dispute through the card scheme
This triggers a dispute case through Visa/Mastercard/Amex processes. Time limits vary by reason code and circumstances, but the point is the mechanism is scheme-led, not bank-led.
Step 2: The acquirer/processor pulls the disputed amount back (or holds it)
For many merchants using modern processors, the practical effect is immediate: the processor debits (or holds) the disputed amount and may also apply dispute fees, depending on the contract and platform rules.
For example, Stripe explains that when a dispute is opened, the card network debits Stripe and Stripe then debits the merchant’s Stripe balance (and holds funds for the dispute period). See Stripe: how disputes work.
Step 3: Evidence and deadlines keep running even if the bank account is frozen
A bank freeze doesn’t pause scheme deadlines. The operational issue is that internal workflows (shipping proof, supplier documents, refund processing, customer comms) can be harder to manage during a freeze, which can increase friction and dispute volume.
Step 4: Outcome: reversed payment, or dispute won back
If the merchant loses, the reversal remains. If the merchant wins, the scheme and processor reverse the reversal and release held amounts according to their timelines.
Where does the money come from if your business bank account is frozen?
When a bank account is frozen, the “funding source” for disputes often shifts away from the bank account and towards processor-controlled balances and future settlements.
Common funding paths include:
Processor balance debit / held funds: The processor removes or locks the disputed amount from the merchant’s balance while the dispute is open (Stripe describes this mechanism in how disputes work).
Reserve or rolling reserve usage: Some processors maintain reserves that can be used to fund disputes/refunds; Stripe notes reserves can be used when transactions are refunded or disputed (see Stripe reserves FAQs).
Offsetting future settlements: If new card takings continue, the acquirer/processor can net dispute losses against future payouts before money ever reaches the frozen bank account.
Negative balance / top-up mechanics: If disputes exceed available balance, some platforms can show a negative balance that must be resolved under platform terms.
This is also why businesses often see payout delays or tighter controls during restrictions. For the broader “why processors hold payouts” explanation, see why payment processors hold payouts during account restrictions.
Summary table
| Scenario | Outcome | Practical impact |
|---|---|---|
| Bank account frozen; chargeback filed | Chargeback proceeds via scheme rules | Dispute deadlines continue even though bank rails are restricted |
| Processor debits disputed amount from balance | Funds held/removed during dispute window | Less cash available for wages, suppliers, tax, and refunds |
| Disputes exceed available processor balance | Negative balance or extra controls | Future payouts can be reduced or paused until exposure falls |
| Bank can’t receive payouts due to freeze | Payout attempts may fail or pause | Card takings can accumulate off-bank, increasing liquidity stress |
| Refunds attempted while chargeback open | Refund may be blocked outside dispute flow on some platforms | Customer experience and dispute ratios can worsen |
How a freeze can increase chargeback risk (indirectly)
A bank freeze doesn’t “cause” chargebacks, but it can make chargebacks more likely through knock-on effects:
Delayed fulfilment (stock can’t be purchased, couriers not paid).
Refund delays (cash is fragmented between bank and processor balances).
Customer support disruption (reduced staffing/tools during restriction).
Increased “non-receipt” or “not as described” complaints if service levels slip.
If you’re mapping wider card-payment behaviour under a freeze (beyond disputes), this companion explainer helps: what happens to card payments when a business account is frozen.
Refunds vs chargebacks during a freeze: why the distinction matters
Refunds and chargebacks can look similar to customers (money returns), but the operational consequences differ:
A refund is initiated by the merchant/processor and typically has fewer fees and less scheme scrutiny.
A chargeback is initiated by the cardholder via their issuer and creates a formal dispute process, often including evidence submission, deadlines, and potential fees.
Some platforms restrict merchant-initiated refunds while a dispute is open (Stripe describes that refunds can’t be issued outside the dispute process during an open dispute in how disputes work). For refund mechanics specifically when bank rails are constrained, see card refunds when a business account is frozen.
Scenario-level / Process-level / Outcome-level
| Scenario-level | Process-level | Outcome-level |
|---|---|---|
| Bank account frozen | Bank rails restricted; processor relies on internal balances | Disputed amounts more likely to be held or netted off before payout |
| Chargeback initiated | Scheme dispute opens; evidence window begins | Funds debited/held; operational deadlines continue |
| Multiple chargebacks arrive | Processor monitors dispute ratios and exposure | Reserves/payout controls can tighten until risk reduces |
| Freeze lifted | Bank rails normalise | Payouts may resume, but reserves/holds can persist until disputes close |
Practical cash-flow implications: the “double hold” effect
A freeze can create a double constraint:
Money can’t flow freely through the bank, so normal supplier/refund operations strain.
Dispute funding shifts to processor-controlled mechanisms, so more of your card takings may be held back, reserved, or netted off.
To understand where you are in the card money journey (authorisation > settlement > payout), the settlement explainer can help frame it: card settlement and payouts when a business account is frozen.
Compare Business Bank Accounts
Different business bank accounts can vary in operational features that matter during restrictions (for example, service channels, payment tools, and how quickly account changes can be actioned).
This doesn’t mean any provider prevents freezes, but it can change the practical experience of managing disruption.
See our neutral hub overview: Business bank accounts.
Frequently Asked Questions
Yes. A chargeback is raised through the cardholder’s issuer and processed under card scheme rules, so a bank restriction on the merchant’s account doesn’t stop the dispute from being created.
UK-facing explanations from the Financial Ombudsman Service and UK Finance describe chargeback as a card scheme mechanism operated through issuers and acquirers rather than a merchant bank account function. See FOS chargeback overview and UK Finance chargeback explainer.
Often, the processor/acquirer debits the disputed amount from the merchant’s processing balance or holds it while the dispute is open. Stripe describes this “debit and hold” flow directly in Stripe: how disputes work.
If there isn’t enough available balance, some platforms show a negative balance or use reserves/future settlements to manage exposure. That can mean future payouts are reduced before funds would have reached the bank.
No. Card scheme timelines continue regardless of the merchant’s bank account status. Evidence windows and responses are part of the scheme dispute process.
Scheme-level guidance is documented in sources such as Visa’s Dispute Management Guidelines for Merchants and Mastercard’s Chargeback Guide, which outline dispute processes, messaging flows, and reason-code frameworks.
Sometimes a refund is possible, but it depends on the platform state and whether a dispute has already opened. Some processors restrict refunds outside the dispute flow once a dispute is open (Stripe notes this in how disputes work).
Even where refunds are technically possible, a freeze can create practical friction (cash fragmentation, payout delays), which can affect timing and customer experience.
If the dispute is decided in the merchant’s favour, processors typically release or return held amounts according to their internal timelines and scheme settlement processes.
However, if the payout route to the bank remains restricted, returned funds may still sit within the processor balance until payouts can be made successfully.
Yes. Chargebacks can be raised after the event that triggered the dispute, and time limits vary by scenario and reason code. UK-facing guidance commonly notes typical time windows (often referenced as around 120 days depending on circumstances), and scheme rules allow different periods in some cases.
It’s also possible for disputes raised during a freeze to remain open after the freeze ends, meaning held funds can remain constrained beyond the bank restriction window.
Chargeback is generally treated as a card scheme process rather than a statutory right, and the exact rules can differ by scheme. The Financial Ombudsman Service describes chargeback as a mechanism subject to scheme circumstances and evidence requirements in its chargeback overview.
A separate legal route can exist for credit card purchases under Section 75 in specific circumstances, as set out in Consumer Credit Act 1974 – Section 75.
Section 75 (credit cards only, subject to conditions) can make the credit provider jointly liable with the supplier, which is different from chargeback’s scheme-driven reversal mechanism. The legal basis is in Section 75 of the Consumer Credit Act 1974.
During a freeze, the practical difference is that Section 75 is pursued by the consumer against the credit provider, whereas chargeback triggers scheme dispute flows that can debit/hold merchant funds through the acquirer/processor chain.
PayPal describes that when a dispute/chargeback process is triggered, it can place a temporary hold on transaction funds while the case is handled (see PayPal: dispute resolution for sellers).
If the business bank account is frozen, the practical issue can be that funds may remain held within the PayPal environment and withdrawals to a bank account may not complete until both the PayPal case state and the bank rails allow it.
It can happen indirectly. A freeze can increase refund friction, delivery delays, and dispute volumes – all of which can increase perceived processing risk. Some processors explain that reserves can be used to cover disputes/refunds (for example, see Stripe reserves FAQs).
This is closely related to why processors may hold payouts during restrictions. For the broader mechanism, see why payment processors hold payouts during account restrictions.
A bank freeze blocks movement of money at the bank-account layer, but chargebacks operate at the card-scheme layer. When a freeze disrupts normal operations, the business can look “active” (still selling) while being cash constrained (funds held, netted, or reserved), and disputes continue to mature in the background.
The hidden mechanism is that dispute losses are often funded before money reaches the bank account – via processor balances, reserves, and netting against future settlements. That’s why chargebacks can still bite even when the bank account itself can’t be debited in the normal way.
Sources & References