Bankruptcy -B is for Bank Account
Can I keep my bank account when I file bankruptcy?
Yes, you can keep your bank account when you file bankruptcy. Many people assume that they cannot keep basic things when filing for a bankruptcy. This is not true. You can keep a bank account, the banks typically will not close your bank account. One exception would be if you owed your bank money where you have your checking account or savings account, but usually they would just require you to pay the overdraft before they will let you continue business as usual.
Exempt Bank Account
Checking and savings accounts are listed on Schedule B of the bankruptcy petition. You would then list any available exemption to protect the funds in those accounts. In Illinois, debtors use the wildcard exemption to protect the money in bank accounts. The Illinois Code section is 735 Ill. Comp. Stat. 5/12-1001 (b). This states that “personal property, owned by the debtor, is exempt from judgment, attachment, or distress for rent: b) The debtor’s equity interest, not to exceed $4,000 in value, in any other property.” So, using the Illinois bankruptcy exemptions, you can protect up to $4,000 in your bank accounts. This wildcard is also used for furniture, electronics, cell phones, computers, jewelry, and other household goods, so it is important to talk with your experienced bankruptcy lawyer to help you properly use your Illinois bankruptcy exemptions to protect your bank accounts and other assets.
Setoff of a bank account
In bankruptcy, setoff is where you would owe a creditor money, and they are holding funds on your behalf. The most common setoff is where you have a bank account and owe that same bank money. The bank is allowed to use the funds being held and apply that to the debt you owe. Most often, I see credit unions do this most often. In their security agreements when you open the accounts or incur the debt by taking a loan or a credit card, it states in that small print that you are pledging the bank account as collateral for the debt. Setoff, is, unfortunately, permitted by 11 U.S.C. § 553.
How do I prevent setoff of my bank account?
The easiest way to prevent setoff is to minimize the amount of money in that account held by a bank or credit union to whom you owe money. Simple. Just open a checking or savings account at any other bank where you do not owe money, and change your direct deposits and automatic withdrawals to that new account. Keeping the setoff bank account at a minimum prevents the creditor from grabbing those funds once you file for bankruptcy protection.
Free consultation with a Chicago bankruptcy lawyer
Finally, feel free to contact me for a free bankruptcy consultation and I can show you how I can protect your bank account in bankruptcy.