When you file for bankruptcy, you have to fill out numerous forms. In one of those forms, Schedule B, you are required to give the information about all of your personal property, including funds in your bank accounts. Many of my clients ask what happens to their bank accounts once they file for bankruptcy. Keep reading to find out.
After filing for bankruptcy, your bank may or may not freeze your checking or saving accounts. This happens for two main reasons:
- The bank wants to protect your money which is part of the bankruptcy estate
- To protect its right to offset your money against any debt you owe the bank.
How it works if the bank freezes your account to protect the fund of your bankruptcy asset:
When you file bankruptcy, all of your property becomes part of the bankruptcy estate which is under the control of a trustee appointed by the bankruptcy court. This trustee can use property in the estate to pay your debts. However, you are allowed to preserve or exempt certain assets for your new start. The exemption available in New Jersey for bank accounts is $13,000 for a single filer and $26,000 for joint filers. Currently only one bank in New Jersey freezes accounts. The bank does not make an independent determination as to whether the money is exempt. Instead, it waits until the trustee releases the asset or instructs the bank to turn over the funds to the trustee.
How it works if bank freezes your account to offset your debt to the bank:
Your bank has the right to take money out of your account to satisfy the debt you owe to it. It’s called the “right of offset.” Though there are restrictions on when and how a bank can exercise its right of offset, usually a bank will only take the money out of your account if you have defaulted on your obligation.
You should consult with an experienced bankruptcy attorney to protect your bank accounts before filing. Contact me today to schedule a consultation to learn more about the bankruptcy process.
