Filing for Chapter 7 Bankruptcy and Keeping Your Bank Accounts

One of the most common questions I hear from clients is whether they are able to keep their bank accounts while they are in bankruptcy, or to open new accounts after bankruptcy.   My usual answer to that question is that there is nothing under bankruptcy code that would prevent a debtor from having or keeping bank accounts.  While there is nothing under the bankruptcy law that prohibits it, there are may be some practical complications.

As I have discussed previously, a typical bankruptcy requires planning and preparation.  One of the possible situations I prepare my clients for is a possibility that their bank may close their bank accounts or withdraw money from their accounts.  If the debtor has a bank account with a bank or credit union that has also loaned him or her money, that bank has the right of set-off.  That is the bank has the right to set-off the money in the debtor’s account against any debt owed to the bank.  This is true even if the debt was not delinquent and the funds would be protected by the debtor’s cash exemption. Under a typical lending agreement, a bank or a credit union is usually cross-collateralized.  That means that any assets you have securing the loan, including any accounts you may have at that institution, secure all of debtor’s debts with that bank or credit union.  If the debtor files for bankruptcy, the bank may take any funds and apply them to any outstanding loan.  Even if the debtor is planning to continue to pay on the loan, and sign a reaffirmation agreement, the funds may be frozen or suddenly become unavailable.  It is usually my advice to open a back-up account elsewhere, at an institution where the debtor didn’t borrow any money.

If the debtor has accounts which might be subject to set off, there is no need to close such accounts.  If there is a small amount of money left in the account, those issue can be resolved after the bankruptcy filing.  With respect to opening bank accounts after bankruptcy, the debtor may run into some problems with the Chex Systems which is utilized by most banks.  Chex Systems operates similarly to credit bureaus and receives reports from its member institutions.

If you contemplating filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, or are dealing with debt problems in Western New York, including Rochester, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation with a Rochester, NY, bankruptcy lawyer.