Bank accounts and bankruptcy filing: avoid disaster

16 Dec Bank accounts and bankruptcy filing: avoid disaster

The money in your bank account at the moment you file bankruptcy belongs to the bankruptcy estate. It may be claimed exempt; the trustee may walk away from small bits of money, but the legal right to it belongs to the estate created by the bankruptcy filing.

So what? First, your “helpful” bank may freeze the account, ostensibly to assist the bankruptcy trustee in preserving the estate. Even if the money is claimed exempt, you may have no immediate access to it.

Second, checks written but uncashed when the case is filed may be returned by the bank without payment. If your claims of exemption were based on the balance in the check book register rather than on the balance actually shown on the bank’s books, the facts have shifted. The estate is larger by those dishonored checks and the would be payees of those checks are disappointed.

Moral of the story: make any last minute payments before filing in cashier’s checks, since the money leaves your account when the check is issued (rather than when it is honored) and have no more money in the bank than you can manage to have frozen for several weeks.

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Cathy Moran, Esq.

I'm a certified specialist in bankruptcy law (California State Bar Board of Legal Specialization) practicing in the San Francisco Bay Area for more than 30 years. In addition to practicing bankruptcy law, I train new practitioners at Bankruptcy Mastery.
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