You should consult with a local bankruptcy attorney immediately. It is unlikely that this bank account balance is protected from garnishment since Indiana only protects $300 in cash.
Unfortunately, since the money has been taken out of the 401k, it is no longer protected from garnishment or levy by creditors. Only the first $350 (not $300) of money (including checking and savings accounts) is protected from creditors - but try telling that to the creditor/bank that has your money frozen. I echo the prior responder - get yourself to a bankruptcy attorney ASAP.
I am only licensed in Indiana. The information provided is general information, and is not intended to be interpreted as individual legal advice. For advice specific to your circumstances, you should consult an attorney.
This could be a big problem. Once the money is out of the 401(k) it may not be protected anymore, while it was protected while in there and would have remained protected if you had rolled it over to an IRA instead of just putting it in your account. Are you saying that your bank account is now frozen due to the garnishment? A chapter 7 may not even help you as you may lose all of the money in the account to the Trustee. You may have to try to work out a payment plan with the creditor to get them to unfreeze the account. Or, if you file Chapter 13, that would unfreeze the account, get you access to the money, and then you might or might not be able to convert the case, dismiss the case, etc. Get thee to a local bankruptcy attorney now.
I am licensed only in Texas. Offering information of a general nature in response to a question is not intended to be legal advice in your state.