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Should I Have a Bank Account During Bankruptcy?

October 16, 2015

In general, there is no consequence to having a bank account during a bankruptcy case. However, there are a few “red flags” to observe and avoid:

Do you owe the bank money?
If you owe your bank money, it may try to freeze your account and collect the amount you owe. The 1995 US Supreme Court case of Citizens Bank of Maryland v. Strumpf, 516 US 16 (1995), holds that a bank can freeze an account and withhold funds so that it has time to make a request for setoff from the bankruptcy court. Once an account is frozen for setoff purposes, the money is likely gone for good.

Do you have a joint account?
If you have a joint bank account with a person not filing bankruptcy, the funds in the bank account may be subject to turn-over to a Chapter 7 bankruptcy trustee. Suppose, for instance, that you are a co-signor on your elderly mother’s bank account. Her Social Security check and a small pension are deposited into that account each month. You are required to list the bank account on your bankruptcy schedules and account for the money. The trustee may demand turn-over of half of the joint account, and it is your burden to show (perhaps to a judge) that the money is not yours. The trouble of having your name on someone else’s account may outweigh any convenience benefit.

Do you have an outstanding payday loan?
If you have a post-dated check with a payday loan company, the check may be negotiated after you file bankruptcy. Most courts state that the presentment of the post-dated check does not violate the automatic stay provisions of the Bankruptcy Code. However, the funds collected by the payday loan company may be an avoidable post-petition transfer under Section 549 – meaning that the debtor may get the money back.

All of these red flag situations can be avoided with the advice and guidance of your bankruptcy attorney. Your personal situation will dictate whether the best course of action is to do nothing, open another account and switch all direct deposits, and/or close your existing bank account.

If you are considering filing for bankruptcy please call the experienced attorneys at Fears Nachawati Law Firm to set up a free consultation. Call 1.866.705.7584 or send an email to


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