Avoid Having your Bank Accounts Seized when you File Bankruptcy in MN

I don’t know what banks and credit unions are doing in other parts of the country.  I speak here only of what I have seen and heard about here locally in Minnesota, and specifically just the Twin Cities area. Here in Minnesota, in the Twin Cities area, there is a substantial danger that your savings and checking accounts will be seized or frozen by your bank or credit union when you file a personal bankruptcy.  I have always believed it to be a despicable thing to do.  Some banks and credit unions are worse than others at doing this.  When you choose a lawyer to handle your bankruptcy case, you might want to make sure that he or she is a person with enough experience to be aware of this problem and how to head it off before it happens.

The problem is this.  If the bank or credit union is one or your creditors, you can expect that institution to seize your accounts as soon as they are notified of the bankruptcy.  If this is not planned for it can result in quite a surprise – checks bouncing, a debit card that has stopped working, and the evaporation of money you thought you had.  There are some banks that are worse than others  when it comes to this problem.  They might freeze your account even if they are not a creditor, especially if your account has a fairly large sum of money – something in excess of $3,000.  I don’t want to mention them bank by name here, but I believe I did mention one in this video.

You should expect your bankruptcy attorney to coach and advise you as to how this is to be avoided. What I tell my clients is that if they have an account with a bank or credit union which they owe money to, that account should be closed well in advance of the filing of the bankruptcy case – whether it’s a Chapter 7 bankruptcy or a Chapter 13 bankruptcy. If you don’t close that account, the bank or credit union will claim a right of setoff against your money in the account, which is a fancy way of saying that they will seize the money.  There are certain banks where all accounts should be closed if at all possible, whether you owe them money or not. Once they seize the money you won’t get it back – or at least usually won’t.

So the thing to do is to close all such accounts before you file your bankruptcy case.  It takes planning of course. I’m not saying you should try to live without a checking account.  What you need to do is open an account at a bank which is NOT one of your creditors, and get all your automatic deposits and automatic withdrawals up and running with the new account before we file your bankruptcy case.  I believe that the best banks to use for this purpose are the small neighborhood banks – for example a bank with a name that starts with “State Bank of …” or “Citizens Bank of …” The process of getting the new account set up and getting the auto deposits and auto payments moved over to and set up at the new bank may take a few weeks, but I consider this to be part of the normal planning and preparation that goes into making your case as painless as possible.

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