How will bankruptcy affect my bank account?

Posted on Nov 12, 2012 By Attorney Carla Handy

The average person who is contemplating bankruptcy relief works hard every day to take care of their family and a disruption to their bank account can be devastating.  Generally speaking, the funds in a bank account can be protected but there are certain issues regarding bank accounts and the banking industry in general that you will want to be aware of if you are considering filing for bankruptcy.

First, within the bankruptcy process itself, funds in a bank account can be protected by claiming the money in the account as exempt from the claims of creditors.  An exemption is simply an amount or value of an asset that the law says, no matter what, your creditors cannot reach.  If the bank account fits within the amount allowed by law, the funds are safe and a knowledgeable bankruptcy attorney can guide you in claiming this exemption.  Second, in preparing to file for bankruptcy relief, if you owe a debt to a bank where you maintain a checking or savings account, you should  strongly consider opening a new account with a bank where you do not owe any money prior to filing.  This is because a bank can “set off” against your bank account if you owe them money on a debt and that debt has gone unpaid.  The set off could consist of the bank withdrawing a monthly loan payment that is past due from your account.  Or, if the bank has obtained a judgment against you for an unpaid loan, it may pull all of the money in your account to satisfy this debt.

There are certain banks that will deny you access to your checking or savings account once you have filed for bankruptcy relief.  While this action by the banks is misguided and based upon an incorrect interpretation of the Bankruptcy Code, it can be very distressing for a debtor while the bankruptcy attorney works to straighten out the problem.  For this reason, it is best to open a new account with a more accommodating bank prior to filing the bankruptcy.

Finally, if your paycheck or monthly benefit is direct deposited into a bank account that will need to be closed in preparation for a bankruptcy filing, you will need to take quick action to transfer that deposit to any new bank account that you open.  With adequate planning, there is no reason why your bank accounts should be adversely affected by the filing for bankruptcy relief.

If you are considering a bankruptcy option and need assistance please contact one of our locations nearest you for a free, confidential consultation with one of our experienced, licensed attorneys.