Plan For Bankruptcy By Moving Funds In Bank Accounts Terminating Automatic Payments And Preparing For A Utility Deposit Set Off
Updated By Cara O’Neill, Attorney
Your creditors are supposed to stop taking money from your accounts when you file for bankruptcy, but it doesn’t always work as smoothly as you’d expect. Why? Even though the automatic stay order prohibiting most collection efforts goes into effect immediately, it’ll usually take a week before creditors receive the court’s bankruptcy notice. In this article, you’ll learn how to avoid losing money unnecessarily.
Spending While In Chapter 13
If you file a Chapter 13 bankruptcy petition and your case is confirmed, you have shown the court and the Trustee that you have sufficient income to pay your ongoing expenses and also repay your creditors in part. The money you make after the filing date should first be used to make your monthly plan payment to the Trustee. After that, your money is yours to do with as you please, up to a point: if you need to make a large purchase such as a car or a house, you might need the courts permission. Consult with your attorney.
Do Trustees Monitor Your Bank Accounts In Chapter 13 Cases
- Posted on Jan 16, 2016
Most Chapter 13 Trustee’s are administering thousands of cases and they simply don’t have the resources or manpower to monitor Debtors’ bank accounts. Most jurisdictions prohibit a Debtor from incurring any additional debt, entering into any credit transactions, or liquidate any property, while they are in an active Chapter 13 case without first obtaining Court approval. The letter you are receiving from the Chapter 13 Trustee is attempting to remind you of the above restrictions. Tax preparation companies offer “fast or rapid refunds” which are basically a loan secured by the tax refunds you are entitled to receive. They don’t do it for free, there are costs assessed and other hidden fees. Chances are if you completed the mathematical calculations, you would find that the interest and costs you pay your tax preparer are worse than any of the debts that caused you to consider filing the bankruptcy in the first place. The instant gratification from getting your tax refunds right now will result in you spending the money on items that you probably wouldn’t if you simply waited the couple of weeks more to get the entire refunds through the normal processing. Use the extra time to actually evaluate the best use for the tax refunds, and don’t get suckered into taking less now instead of more later. Best of Luck to you.
You May Like: Bankofamerica Order Checks
Bankruptcy Exemptions: Property You Can Keep
Chapter 7 bankruptcy involves gathering certain property or assets, if you have them, and selling them to pay off as much debt as possible. This step, known as liquidation, must happen before the rest of your debt can be “discharged” or eliminated.
The good news is that state and federal bankruptcy law protects many kinds of property from being sold off to pay these debts. These protections are called “exemptions” and they include:
- Your house
- Certain personal property
- Wildcard exemptions
Exemptions are determined at the state law level, or the list set out by federal law. Some states require you to use only the state’s list. Be sure to check your state’s laws to find out what applies to you.
Can I Pay Off My Chapter 13 Trustee Early
You may at some point find yourself with additional income and want to pay-off your Chapter 13 trustee earlier than your planned arrangement. While this may seem like a good idea, whether it can or should be done will be based on the specific Plan that was approved by the Court in your case and the amount and type of your debts. An early pay-off may not be your best option, hereis why:
- The only way to pay-off a Chapter 13 Plan early, prior to the Plan term is to pay all debts in full. This may sacrifice debt reduction that would result if your Plan fulfills the full term.
- When a Chapter 13 Plan allows for a reduction of your debt this is based on the idea that the most you can afford to pay is less than the total debt you owe. If you have more money that would allow you pay more sooner the Court can require that you remit those additional funds to the Trustee and stay in the Plan for the full term .
So, you are agreeing to paying your trustee for a 3-5 year period and not a set overall dollar amount. Your creditors will argue that the funds you intend to use to pay off the plan should be used to increase your payment to creditors, not to shorten the duration of your Chapter 13 bankruptcy.
There are a few exceptions to this rule. If you are able to pay-off your creditors 100% in full, they will gladly take your payment early.
These exceptions are rare and difficult to navigate, so make sure you discuss your options with an experienced bankruptcy attorney.
You May Like: How To Activate Bank Of America Debit Card
Protecting Checking And Savings Account Balances With Bankruptcy Exemptions
All bankruptcy filers must take another step to protect bank balancesmaking sure that a bankruptcy exemption will protect the funds.
Exemption laws protect property from creditors before and during bankruptcy. If an exemption protects your property, you’ll keep it. Otherwise, you’ll lose it in Chapter 7 or pay for the property in Chapter 13 .
All filers review exemptions to identify property a filer might lose in bankruptcy. And most learn that protecting bank account balances isn’t always easy. Most states protect a minimal amount of money, if any.
Here’s what you’ll do.
When you check your state bankruptcy exemptions, look for an exemption protecting cash or a bank balance. If you don’t find one, consider the money-related exemptions we’ve listed below. But don’t get excited by the length of the listmost apply in unusual cases only. A wildcard exemption will probably be your best bet because many let you protect an asset of your choice .
Important notes. Many exemptions cover amounts owed to you that you haven’t yet received. The money often loses protection once you get it or if you comingle it with other account funds. Also, the trustee might ask for bank statements showing balances on the bankruptcy filing date, and the “check or debit hadn’t cleared” excuse won’t work.
Planning tips. Keep exempt funds in a separate account. Use nonexempt funds for necessary things like rent, utilities, car repairs, and clothing. Keep records and don’t pay months in advance.
Your Bank Might Freeze Your Account After Chapter 7 Bankruptcy
Many banks and credit unions freeze the bank accounts of individuals filing for bankruptcy even when the debtor doesn’t owe the bank money. The banks’ position is that all of the debtor’s assets come under the control of the bankruptcy trustee immediately after filing for Chapter 7 until the debtor receives a debt discharge, and that freezing the accounts protects the funds for the trustee.
Of course, it’s a hardship for debtors who are frozen out of the account without warning. But the solution is often simple. The debtor or the debtor’s attorney can contact the Chapter 7 trustee. If the funds are exempt, the trustee will usually instruct the bank to give the debtor access to the account, although it might take a few days. Otherwise, the debtor must file a motion with the court to have the funds released.
How to avoid this problem. As discussed above, you’ll want to consider paying your bills before filing for bankruptcy. Ensure a minimal balance by withdrawing the funds and using cash for your debts. Just be sure to use the funds before you file and keep good receipts.
Also Check: Td Bank Daily Atm Withdrawal Limit
How To Hide Bank Accounts From Creditors
Judgment debtors sometimes want to know how to hide money from creditors. But hiding a bank account from creditors is never an effective asset protection strategy.
Judgment creditors can find where a debtor maintains bank accounts by using post-judgment discovery, or discovery in aid of execution. Post-judgment discovery refers to the creditor collection tools that allow a creditor to find out where the debtor holds assets that are available to satisfy a judgment. A creditor has several methods of forcing a debtor to answer questions under oath about the debtors financial accounts, cash on hand, and any other source of money that the debtor has available. These methods prevent a debtor from effectively hiding a bank account from creditors, other than lying under oath. Some creditor discovery tools include:
- oral deposition of the debtor under oath
- requests to produce accounting statements and other financial documents
- Floridas standard fact information sheet
- examination of the debtors federal tax returns that show bank interest income
Using a combination of these discovery methods, a creditor may identify all of a debtors financial accounts wherever located or identify any person or company owning financial accounts on the debtors behalf.
Losing Checking Or Savings Account Money Due To A Bankruptcy Setoff
Here’s an important question all potential bankruptcy filers should ask themselves: “Do I have a credit card, car loan, or line of credit where I bank?” If your answer is “Yes,” you’ll probably want to open a checking and savings account somewhere else. Here’s why.
The problem comes from a clause contained in the loan contract called a “setoff.” A setoff lets your bank dip into your savings or checking account if you miss a payment or default on your loanand bankruptcy is considered a default.
Planning tip. Open an account with a bank you don’t owe money to and do your banking there.
Also Check: Does Zelle Work With Chase Bank
Does Chapter 7 Trustee Check Your Bank Account
chapter 7 bankruptcytrusteeyouryourtrustee doesyour bank accountsbankruptcy
. Also asked, how much cash can you keep when filing Chapter 7?
You can keep 75% of cash attributable to your wages, and up to $1,000 per person filing in addition to the 75%, unless you have used this exemption for something else.
Also, what happens to your bank account when you file Chapter 13? Chapter 13 bankruptcy allows the debtor to keep the fund in the bank account in excess of the exemption amount. Even the debtor is free to open a new bank account with the court’s approval. However, make sure you make the payments each month and pay back the debt within the life of the repayment plan.
Considering this, do they freeze your bank account when you file Chapter 7?
When you file bankruptcy, some banks will freeze an account to protect the funds until it can determine if it will exercise its right of offset. The automatic stay prohibits creditors from taking collection actions without bankruptcy court approval.
What happens to your bank account when you file Chapter 7?
In Chapter 7 bankruptcy, the bankruptcy trustee is tasked with taking over all nonexempt assets and selling them in order to repay as much of your outstanding debt as possible. This means that if any funds in bank accounts at the time of your bankruptcy filing cannot be exempted, you must turn them over to the trustee.
If Youve Been Refused A Bank Account
You may find that no bank will agree to you opening an account with them. If this applies to you, you have three main options:
- apply for a basic bank account
- join a credit union
- get a prepaid debit card
The best solution for you will depend on what kind of income you have and the kinds of payments you want to make.
Don’t Miss: How To Activate Bank Of America Debit Card
Can You Keep Using Your Old Bank Account
Some banks may let you keep using your existing bank account, but this might only happen after they’ve frozen it for some time while they speak to the official receiver.
If you want to keep using your existing bank account, you should ask your bank whether this is possible. Bear in mind that they don’t have to say yes, and that the official receiver doesn’t have any influence over their decision.
The Chapter 7 Discharge
A discharge releases individual debtors from personal liability for most debts and prevents the creditors owed those debts from taking any collection actions against the debtor. Because a chapter 7 discharge is subject to many exceptions, debtors should consult competent legal counsel before filing to discuss the scope of the discharge. Generally, excluding cases that are dismissed or converted, individual debtors receive a discharge in more than 99 percent of chapter 7 cases. In most cases, unless a party in interest files a complaint objecting to the discharge or a motion to extend the time to object, the bankruptcy court will issue a discharge order relatively early in the case generally, 60 to 90 days after the date first set for the meeting of creditors. Fed. R. Bankr. P. 4004.
The grounds for denying an individual debtor a discharge in a chapter 7 case are narrow and are construed against the moving party. Among other reasons, the court may deny the debtor a discharge if it finds that the debtor: failed to keep or produce adequate books or financial records failed to explain satisfactorily any loss of assets committed a bankruptcy crime such as perjury failed to obey a lawful order of the bankruptcy court fraudulently transferred, concealed, or destroyed property that would have become property of the estate or failed to complete an approved instructional course concerning financial management. 11 U.S.C. § 727 Fed. R. Bankr. P. 4005.
Recommended Reading: Expresssend Wells Fargo App
Who Is A Trustee
Trustees have been a part of the bankruptcy system in the U.S. for more than 150 years. The role was created so that and courts wouldnt have to be responsible for collecting and distributing a bankruptcy debtors property.
The laws that dictate a trustees place in the legal system have changed over the years. At one point, the law required trustees to be assigned by the court or even by creditors.
Today, bankruptcy trustees are private individuals supervised by both the court and U.S. trustee officers. This arrangement helps provide the debtor with an impartial party to take charge of their assets.
What If They Audit My Chapter 7 Bankruptcy Case
Federal law instructs bankruptcy trustees to audit bankruptcy filings and their supporting documents:
- Randomly and
- If there is a reason to believe the information may not be accurate or true
If this happens to you, you may want to reach out and enlist the help of a bankruptcy attorney. Our team can help you provide any additional documents, represent you to the trustee and others, and protect your rights.
It is important to remember that a case audit does not mean you did anything wrong. However, it is essential to cooperate and provide any paperwork or information requested during this process. The trustee will ensure your bankruptcy schedules match your banking records and other documents before allowing your case to move forward. This should not be a difficult or stressful process, assuming you provided the correct information.
Don’t Miss: Is Zelle Free With Chase Bank
Avoid Losing Money Or Access To Your Account
You likely already know that you can protect property with bankruptcy exemptions. This includes the money in your bank accounts. However, here are some common problems you’ll want to be aware of:
- Protecting the funds in your account. Most states don’t have a bank account exemption, and if one exists, the amount it’ll protect will be minimal. The bankruptcy trustee tasked with administering your case will look at your account balance on the filing date. You’ll lose any amount over and above the exemption amount, even if you have outstanding checks that haven’t yet cashed.
- Preparing for frozen funds. Some banks, to preserve the assets for creditors, will freeze your account as soon as they receive notice of your bankruptcy. If the funds are yoursfor instance, the money is post-filing incomeyou or your attorney should contact the bankruptcy trustee. The trustee will instruct the bank to lift the freeze.
In both cases, the avoiding the problem is simpleensure your balance is low by using your funds to pay necessary bills before you file. As long as you keep records, you shouldn’t run into an issue.
Does Your Credit Score Go Up After Chapter 7 Discharge
Your credit scores may improve when your bankruptcy is removed from your credit report, but youll need to request a new credit score after its removal in order to see any impact. Credit scores are not included in credit reports. Rather, scores reflect what is in your credit report at the time the score is calculated.
Don’t Miss: Td Bank Overdraft Protection Limit
Understanding A Bank Levy
A bank levy is a legal tool to seize funds held in a bank by a judgment debtor. In many states, a bank levy is called a garnishment. A bank levy is, in fact, just one type of garnishment. Garnishments, in general, are the legal procedure a judgment creditor can use to intercept debts a third party owes to the debtor. Banks and other financial institutions are indebted to the customer for the amounts the institutions hold in the debtors accounts. State statutes provide procedures for a judgment creditor to obtain a writ of garnishment against the judgment debtors financial assets. Bank accounts, money market accounts, safe deposit boxes, promissory notes, and other financial accounts are all subject to creditor garnishment writs.
Generally, a judgment creditor cannot levy or garnish a bank account until the creditor has filed its lawsuit, served the debtor with process, and obtained a judgment. On the other hand, federal agencies have substantially more power to seize a debtors assets even before a lawsuit has been completed.
To protect a bank account from creditors, one must understand the legal tools a judgment creditor can use to freeze and take the money in your bank account. In Florida and most other states, the judgment creditors legal tool to seize bank accounts is the writ of garnishment.