When you file Chapter 7, you can keep or lose some or all of the money in your bank account when you file bankruptcy. Your bank account’s fate depends on various factors, including:
- Bankruptcy Setoff
Most banking contracts include a setoff clause allowing them to recover money from your bank account without your permission if you default on your debts. Filing bankruptcy qualifies as defaulting on your debts, in which case you may lose some or all of the money in your bank account.
Ideally, your bank account should be in good standing when filing bankruptcy. This means that it shouldn’t be overdrawn, and you must maintain regular, timely payments for outstanding debts such as credit cards and mortgages.
- Exemption
You can file for an exemption to keep some of your personal assets after filing bankruptcy, including your bank account. However, most states’ bankruptcy laws permit exemptions for limited amounts of money, usually a few hundred dollars, so you may still lose most of your money.
Can the Bank Freeze Your Account When You File Chapter 7?
Unfortunately, most banks and credit unions freeze filers’ bank accounts. The banks automatically assume that the account belongs to the bankruptcy trustee, and they must protect the money therein. Fortunately, you can get the account unfrozen by proving that the funds are exempt. The bank must also unfreeze your account when you get a debt discharge.
Can the Bank Take Your Money after Bankruptcy?
The bank can lawfully take your money after filing Chapter 7. The setoff clause in your banking contract allows the bank to seize your money without your permission if you default on your debts. However, you can keep the bank from seizing your money by getting it exempted or transferring it to another debt-free bank account.
What Shouldn’t You Do after Filing Chapter 7?
Overall, you shouldn’t engage in activities that would qualify as fraud after filing Chapter 7. For example, you shouldn’t attempt to use, hide, or sell non-exempt assets.
Can You Withdraw Money from Your Bank Account before Filing Bankruptcy?
Technically, you can withdraw money from your bank account before filing bankruptcy. However, it isn’t advisable to do so as the court may deem your actions fraudulent.
Most people intend to hide the money they withdraw from their bank accounts before filing bankruptcy. Others try to use the money to purchase as many exempt assets as possible. However, withdrawing money in bad faith is considered fraud, and consequences include losing your debt discharge, hefty fines, and criminal charges with lengthy jail sentences.
Ensure that you disclose all the money you withdraw from your bank account before filing Chapter 7. It is also worth noting that you can transfer your money to another personal bank account without consequences.
What Assets Can You Keep in Chapter 7?
Bankruptcy exemptions only protect essential personal assets that you need. Most notably, you can keep your house (you need shelter) and car (you also need a means of transport). However, you can lose your second holiday home because you don’t need it. Most commercial assets needed for work are also exempt, and the trustee may not sell low-value personal assets such as appliances.
Conclusion
Filing bankruptcy doesn’t necessarily entail losing your bank account. However, you can lose some or all of the money in your bank account, depending on exemptions and the other factors discussed in this article. Overall, it is prudent to do your homework before filing bankruptcy. Also, consider speaking to a bankruptcy lawyer near you.