When we meet our clients for a free consultation many of them ask if they can keep their bank accounts if they file for bankruptcy. It is an understandable concern. For most people, having a checking account is critical for depositing your paychecks and paying bills.
Bank accounts and bankruptcy can be tricky. The short answer is yes, you can likely keep a bank account; however, it might not be your current checking account.
Bank where you do not owe debt.
The best course of action is to bank at an institution where you do not owe money. Before filing for bankruptcy you can open a new account with a bank to whom you do not owe money. Since you do not owe a debt to that institution, they will not be listed as a creditor in your bankruptcy petition and will not be notified of your bankruptcy filing.
Some financial institutions bar people who have recently filed for bankruptcy from opening up new checking or savings accounts. This is another reason to open up the new account prior to filing for bankruptcy protection.
Be aware that all assets must be listed in your bankruptcy petition. This means that your bank accounts with a balance above zero must be listed. However, as noted, so long as you do not owe money to the bank they will not be notified of your bankruptcy filing.
Accounts may be closed after you file for bankruptcy.
A bank or credit union may close your account after you file for bankruptcy if you owe them money. But generally speaking, banks will not close your accounts. Also, banks and credit unions will not typically close your account unless you owe on a debt to them at the time you file.
If you open a new account at an institution where you do not owe money, make sure you take the steps to switch your finances over to that account. Change your direct deposit and update any auto-drafts that come from your account. The last thing you want after filing for bankruptcy is for your paycheck to be frozen in an account you cannot access. This is of particular concern when it comes to credit unions.
You do not need to close checking or savings accounts prior to filing for bankruptcy. In fact, we recommend not closing accounts because recently closed accounts must be disclosed in your bankruptcy petition. You have the option to leave just enough money in the account to keep it open and active.
Credit Unions and the Cross-Collateral Clause
Credit unions are great for banking, but often prove difficult when it comes to falling behind on debt payments or filing for bankruptcy.
Most loans and bank accounts from credit unions have a “cross-collateral clause.” The clause grants the lender the legal right to seize the asset pledged by the borrower if the borrower defaults on any loan with the lender. In practice, this means that the credit union can take money from a borrower’s checking or savings account to satisfy a debt that the borrower missed paying, such as for a missed car or credit card payment. They can automatically deduct funds from your accounts to cover a missed payment, without giving you prior notice. Learn more in our article What is a Cross-Collateral Clause?
Credit unions are also known for freezing accounts when an account holder files for bankruptcy. Often the credit union is a creditor, and as such listed in the bankruptcy and notified of the case. Also, some credit unions check for bankruptcy filings and may get wind of a bankruptcy filing even before receiving notice from the bankruptcy court.
Consult with a Bankruptcy Attorney
We’re here to help you through your bankruptcy case from start to finish. It is our mission to ensure that you understand the power and benefits of bankruptcy. We’re here to answer all of your questions. Contact us right now (912) 351-9000 to schedule a free consultation. Together we will explore how bankruptcy can help you.
For over 35-years we have proudly served the people in Savannah, Richmond Hill, Hinesville, Pooler, Port Wentworth, Tybee Island, Clyo, Ellabel, Midway, Springfield, Pembroke, Brooklet, Garden City, and Ludowici, Georgia.
We are a debt relief agency. We help people file for bankruptcy relief under the U.S. Bankruptcy Code. Find out more about Bankruptcy in our guide: All About Bankruptcy.