One major concern when filing Chapter 7 bankruptcy is the potential for your bank to freeze your bank accounts. This article addresses the reasons why a bank might freeze your bank accounts, and how to avoid it.
Why Will The Bank Freeze My Bank Accounts?
Generally, when you take out a debt with a bank, the credit agreement contains a right to set-off. This means the bank has the right to reach into your checking, savings or other accounts held by the same bank, and use those funds to pay the debt owed to them. Therefore, if you bank with Wells Fargo, and also have a Wells Fargo credit card, you should take steps to make sure the funds are not frozen when you file for Chapter 7 bankruptcy.
Often the funds in question are exempted on your bankruptcy petition. This means you have protected these funds and you will ultimately be allowed to keep them. However, this may not keep the bank from temporarily freezing the funds until your bankruptcy attorney or the bankruptcy trustee makes a formal request to have them released. As a result, you will experience the inconvenience of losing the use of those funds for an extended period of time.
How Can I Avoid Having My Bank Accounts Frozen?
Generally speaking, the safest way to avoid having funds frozen is to withdraw those funds prior to filing bankruptcy. You can hold the funds as cash on hand, or you can transfer them into another bank where you do not have any debt. The only funds a bank can freeze are the funds in the account on the day the bankruptcy was filed. For a lot of Chapter 7 clients, this means they keep the account open, but leave a very low balance in it on the day of filing. This minimizes the damage if the funds are frozen.
Is This Going To Raise Suspicion With The Bankruptcy Court?
No. Transferring funds in this manner is permissible. This is distinguishable from transferring the funds to another individual, which may constitute a gift or a preferential transfer.
How Will I Know If I Need To Transfer Funds Prior To Filing?
Consult with your Chapter 7 bankruptcy attorney regarding this specific issue, prior to the filing of your petition. Identify if you have debt and deposits with the same bank. If so, devise a plan of action with your attorney so that on the date of filing your balance is low enough that even if the funds are frozen you will not be inconvenienced.
Speak With A Charlotte Bankruptcy Attorney
If you’re considering filing bankruptcy and would like to know more about your options, call us to set up a free phone consultation, at 704.749.7747. Or, click HERE to quickly request a call from us. Bankruptcy provides a powerful way out of stressful financial situations. We hope you’ll choose to Recover With Us.