Why you should breakup with your Bank before filing bankruptcy

breakup-with-bank-150x150No matter how much you love your bank, there are a lot of good reasons to leave them if you are going to file bankruptcy.  If you don’t want to leave them, you might want to keep your money somewhere else temporarily.

Reason #1 Frozen Bank Accounts

Several nationwide banks, like Wells Fargo, Bank of America, and Chase, freeze bank accounts with significant balances when they get a bankruptcy notice. This would apply to all bank accounts with your Social Security number attached. It doesn’t matter if you need the money to pay bills, or if the money is exempt, the account is frozen and you can’t get your money. Any money going into the account will be frozen.  The bank will claim they are helping the Chapter 7 trustee. The account can be released, but not always quickly or easily.

Solution- Open an account at another bank and move your money and your direct deposit to another bank, permanently or on a temporary basis.

Reason #2 Set off

Your bank owes you the money you have on deposit with them; but if you have a personal loan or a car loan at the bank, you owe them. The bank has the right to take what it owes you to pay what you owe them. They put it in the small print of the papers you signed when you opened the checking or savings account and it is in the loan paperwork also. This is called a set off, or sometimes an off set. While your bank can do this at any time, a bankruptcy notice is likely to make it happen right away.  Now your money in the bank is the bank’s money.

Solution- Close the account and move to another bank or take the balance down to an amount you can live without for a few days after you file bankruptcy.  Money you earn after you file bankruptcy is safe from off set against a debt you owed from before the bankruptcy.

Reason #3 Shut out

Many bank will block access to electronic records online and to cut off electronic banking access. This is a hassle, it’s inconvenient, but not a major problem in the long run. Credit unions are well known for terminating the membership of anyone who files bankruptcy and discharges a debt to the credit union.

Solution- Open an account at another bank and move your money and your direct deposit to another bank, permanently or on a temporary basis. Or if you are not writing off a debt that you have with the credit union, they are usually okay with keeping you as a member and even loaning you money in the future (as long as the credit union doesn’t lose money in the bankruptcy).

Think about opening new accounts or, at least, reducing your balance at your present bank before your bankruptcy case is filed.