One common concern when filing for bankruptcy is what will happen to your bank accounts. In this post, we’ll explore the implications of bankruptcy on your checking and savings accounts, ensuring that you clearly understand how the process will affect your financial situation.
The Role of Disclosing Bank Accounts in Bankruptcy
When you file for bankruptcy, it’s crucial to disclose all of your assets, including your bank accounts. This includes both individual and joint accounts. Even if you don’t have any funds in a specific bank account, you must still declare its existence to the bankruptcy court. Transparency is key throughout the bankruptcy process.
In most cases, you can maintain your bank accounts during bankruptcy. You can continue using your existing accounts for your daily financial needs.
The Treatment of Bank Accounts in Bankruptcy
With bank accounts, the treatment of these assets will depend on the type of bankruptcy you file and the specific exemptions available in your state. Let’s explore how bank accounts are typically handled in both Chapter 7 and Chapter 13 bankruptcy.
Bank Accounts in Chapter 7 Bankruptcy
In Chapter 7 bankruptcy, your bankruptcy trustee will create a bankruptcy estate, which includes all of your assets at the time of filing. This includes your bank accounts. However, most individuals who file for Chapter 7 bankruptcy can protect their bank accounts through the use of exemptions.
Exemptions are provisions in bankruptcy law that allow you to keep specific assets up to a certain value. The exact exemptions available to you will depend on the bankruptcy laws in your state. Some states have specific exemptions for bank accounts, while others may include them as part of a broader category, such as personal property or cash on hand.
It’s important to note that exemptions have limits, and if the funds in your bank account exceed the exemption amount, the excess funds may be subject to seizure by the bankruptcy trustee to repay your creditors.
If you have funds in the joint account that are not exempt and cannot be protected by bankruptcy exemptions, you may be required to hand over a portion of the cash to the bankruptcy estate.
However, it’s relatively rare for individuals to have significant amounts of non-exempt funds in their bank accounts when filing for Chapter 7 bankruptcy.
Bank Accounts in Chapter 13 Bankruptcy
In Chapter 13 bankruptcy, the treatment of bank accounts is generally more straightforward. Unlike Chapter 7, Chapter 13 bankruptcy involves creating a repayment plan to repay a portion of your debts. As a result, your bank accounts are typically not at risk of being seized or liquidated.
However, it’s essential to remember that you will still need to disclose all of your bank accounts and their balances as part of the bankruptcy filing process. The bankruptcy court and trustee need this information to evaluate your financial situation and determine the feasibility of your proposed repayment plan.
Protecting Your Bank Accounts During Bankruptcy
While bankruptcy may affect your bank accounts to some extent, there are steps you can take to protect yourself and your finances.
Close Accounts with Delinquent Debts
If you have delinquent debt accounts with the same bank where you hold your checking or savings account, it’s advisable to close those accounts before filing for bankruptcy. By doing so, you can prevent any holds or freezes on your cash that may occur once you file bankruptcy. Closing these accounts ensures that you have access to funds for essential expenses.
Open New Bank Accounts
Before filing for bankruptcy, you may want to consider opening a new checking and/or savings account at a bank where you don’t have any outstanding debts. By having a separate account, you can ensure that your funds remain accessible and unaffected by the bankruptcy filing. You could use this account for essential payments, such as rent and utilities.
Stop Automatic Payments
Before filing for bankruptcy, it’s essential to cancel any automatic payments linked to your bank accounts. While automatic payments may be convenient, they can cause complications during bankruptcy. Creditors may continue to withdraw funds from your account after the bankruptcy filing, leading to potential financial issues. By canceling these automatic payments, you can avoid such complications and maintain better control over your finances.
Track Your Finances
During the bankruptcy process, it’s crucial to keep a close eye on your bank account activity. Avoid making significant cash withdrawals without proper documentation. If you need to withdraw cash for essential expenses like rent, utilities, or groceries, keep receipts and be prepared to explain these transactions. Transparency is key to ensuring a smooth bankruptcy process.
Getting Help Filing Bankruptcy
Filing for bankruptcy can be a daunting process, but the guidance of an experienced bankruptcy attorney can help you. They are familiar with the laws specific to your state and can provide personalized advice based on your unique circumstances. By working closely with your attorney, you can navigate the complexities of bankruptcy and protect your bank accounts effectively.
For over 27 years, Brock and Stout’s bankruptcy attorneys have worked hard to guide clients through all aspects of the bankruptcy process. We work with the goal of helping them achieve a financial fresh start. If you are struggling financially, consider contacting us for a free evaluation of your situation to see if we can help you.