In the majority of bankruptcy cases, the debtor will have enough exemptions to allow them to keep their funds inside the credit union or bank account. However, in certain situations, a credit union or bank can freeze the savings or check account after you file for Chapter 13 or Chapter 7 bankruptcy. The latter may mean that you could end up with a frozen bank account.
Many individuals choose to avoid a frozen bank account by moving their financial accounts into a new bank before filing. It makes sense to do this if you owe money to the bank where you have your savings, checking or other accounts. Or, if you are an authorized user on an account for someone not
filing directly with you. Some banks exercise their discretion to freeze your accounts even if you do not owe them money directly. One such bank is Wells Fargo. Wells Fargo may freeze your accounts if you file for bankruptcy even if you do not owe the bank money. Thankfully, this situation does not happen very often but it can be devastating and inconvenient for you.
There are two major reasons why a bank chooses to freeze your account if you file for bankruptcy. First, they may want to protect their right to offset your money against any debts that you owe them. The second reason is they may attempt to protect an asset under the jurisdiction of a bankruptcy court. Once you initiate a bankruptcy proceeding in your state, all of your property becomes subject to the bankruptcy estate itself. It becomes under the control of a trustee appointed by the bankruptcy court. It is the trustee’s responsibility to identify your assets and sell those that are not exempt from paying your debts.
There are some assets, however, which you can keep. These are exemptions and will vary based on the state in which you file bankruptcy. There may be different exemption schemes that apply to your bank account. In some situations, the bank will freeze your account as soon as you file for bankruptcy. Others will file in order to protect the funds until they determine if they will exercise their right of offset.
The automatic stay associated with filing for bankruptcy prohibits any creditors from taking any collection actions without bankruptcy court approval. However, the majority of bankruptcy courts in the United States have determined that an account freeze does not unnecessarily violate the automatic stay. If you owe money to the bank that holds your deposit accounts, consider closing out these accounts and opening an account at a new credit union or bank before you file bankruptcy. Although this might be an inconvenience for you, it would be less inconvenient than losing your money for several weeks while you sort out who should have the responsibility for the account.