What Happens to My Bank Accounts in Bankruptcy?

Typically speaking, your money in your bank accounts will be safe if you decide to file bankruptcy. However, there are a few important things to consider.

Will My Bank Accounts be Closed in Bankruptcy?

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By hiring a lawyer to prepare your petition for bankruptcy, it is our job to protect your assets.  Bank accounts are one of our top priorities since it is usually a valuable asset to guard.  Filing for bankruptcy does not mean that you must close all your accounts or that you surrender all your money or valuables.  For the most part, your bank account will not be affected by filing for bankruptcy nor will your accounts be closed automatically.

However, before you file, it would be wise to make sure that you are in good standing with the bank that holds your accounts.  You should consider switching banks if you have a credit line that will be discharged in the bankruptcy or overdraft fees wiped out.  If you bank with a creditor and you are behind on payments, some banks have it in their contract that allows them access to withdraw payments automatically and without permission.  This is known as a ?set-off.?  Unfortunately this can happen before, during, and after bankruptcy.

Again, we almost never see banks close bank accounts just because someone files bankruptcy, unless they owe the bank money that is being wiped out in the bankruptcy. However, also be careful with credit unions. They, at times, may shut down a bank accounts if you file bankruptcy. Check out our article about the “Hidden Traps of Credit Unions When Filing for Bankruptcy” to learn more about the dangers of credit unions when filing for bankruptcy.

Use of Exemptions

When you file bankruptcy, there are exemptions that are available to help protect your personal assets, such as bank accounts.  Depending upon your state there are different types of exemptions that could be used to protect your bank accounts.

One of the most commonly used exemptions in North Carolina for bank accounts is an exemption that protects the last 60 days of “earnings” which are necessary to support your family. There is no limit on the amount of money that can be protected using that exemption. However, you may be required to show the courts that the money in the bank account(s) are actually earnings and they were earned within the last 60 days or two months. Any amount outside of those two criteria cannot use that exemption.

If you do not have dependent children living in your household or your earnings in your bank account were earned longer than 60 days ago then we would be forced to use what is known as the “wild card” exemption. Your $5,000 (per filer) “wild card” exemption can be used on any type of personal property that you have, including bank accounts. It is important that you work with your attorney to ensure that your wild card is used to protect your most important personal property.

Protecting Yourself from a Set-Off

Another consideration when filing for bankruptcy is that the bank does not “set-off” your bank account. In other words, if you have a mortgage with Bank of America and also have a checking account with Bank of America they could potentially go into your checking account and take money out if you are behind on your mortgage. If you are considering filing for bankruptcy we encourage our clients to open another bank account with a bank they don’t owe money to and move their funds to that new account. However, don’t close the new account until after the bankruptcy. This will ensure that your money is protected from a set-off.

Open a New Bank Account

Finally, we always try and encourage clients to make sure that you have a bank account open at a bank that you do not owe any money to.  Some banks will not let you open a checking or savings account for several years after you file bankruptcy.  Opening a new account before you file will ensure that you are able to have an account to use for direct deposits and that it cannot be tampered with by any of your creditors that you have included in your bankruptcy

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