If you file for Chapter 7 bankruptcy, will you be able to keep your savings, checking, or other bank accounts? The answer depends on what you mean by “keeping.”
If you want to know if you can keep the actual bank account, then for the most part, the answer is yes. If you file for bankruptcy, your bank usually won’t close your savings or checking accounts.
However, if you want to know if you can keep the money in those accounts, the answer is different. In most states, little if any, of the cash in your accounts is protected. Although there are often exceptions for some of that money if it came from exempt sources, for example, recent wages, or money received from public benefits. And if you have a credit card or loan with the bank, it may be able to freeze your accounts when you file for bankruptcy.
Here’s how it works.
When you file for Chapter 7 bankruptcy, certain property is “exempt.” That means that the trustee cannot take it to pay your creditors. Which property is exempt depends on where you live. Each state has a list of exempt property (California has two lists), and some of those states allow you to use the federal bankruptcy exemptions instead. (To learn more about bankruptcy exemptions, including which states allow the use of the federal exemptions, see Bankruptcy Exemptions – What Do I Keep When I File for Bankruptcy?)
Is the Money in Your Bank Accounts Exempt?
To find out if the money in your checking or savings account is protected (meaning the trustee cannot take it), you’ll have to take a look at your state’s bankruptcy exemptions, or the federal exemptions if they are available to you. (To find your state’s exemptions, click on the state link at the end of this article, Bankruptcy Exemptions – What Do I Keep When I File for Bankruptcy?)
Here’s what to look for:
Cash on hand. Some states exempt a small amount of cash on hand. This would include money in bank accounts. Many states don’t exempt any amounts for cash on hand.
Child support and alimony. Many states provide an exemption for child support and alimony.
Crime victim compensation. Most states exempt money you received from the government because you were the victim of a crime.
Public benefits. Most states allow you to keep at least a portion of public benefits you have received that have accumulated in a bank account. Typical benefits that are exempt include Social Security, disability payments, and unemployment benefits.
Wages. Most states exempt a portion of your recent wages. If those exempt wages are in your bank account, that money is protected.
Wildcard. Some states provide a wildcard exemption – an exemption of a certain dollar amount that can be applied to any property you want to keep. (For more information on the wildcard, see How to Use the Wildcard Exemption in Bankruptcy.) For example, if your state has a wildcard exemption in the amount of $1,500, you can use it to keep $1,500 in your checking account. Any amount over that, however, would go to the trustee.
Wrongful death and personal injury payments. Many states exempt money you received within a certain period of time prior to your bankruptcy that was the result of a wrongful death or personal injury lawsuit or settlement.
Others. There may be other exemptions that would allow you to keep money in your checking or savings accounts. Read through your state's exemptions carefully.
Listing Your Bank Accounts in Your Bankruptcy Papers
When you file for bankruptcy, you must fill out and file a large packet of forms. On one of those forms, Schedule B, you are required to list all of your personal property, and this includes cash and money in bank accounts. List everything here, even if you think it might qualify for an exemption. Be sure to list the source, such as Social Security or child support. This will help you and the trustee determine if some or all of that money is exempt.
On another form, Schedule C, you list all property that you claim is exempt. If you believe some or all of your funds in a bank account are exempt, this is where you’d make that claim.
Bank Set-Offs: If You Owe Money to the Bank
If you have a credit card or loan with the bank (for example a car loan), the bank may have the right to a “set-off.” This means that if you default on your loan or get behind in your payments, the bank can cover its loss with funds from your savings or checking account. Your bankruptcy filing is treated as a default on your loans, even if you are not behind in your loan payments, causing the bank’s set-off rights to kick in.
Setoffs are not covered by the automatic stay. When you file for bankruptcy, the bank can freeze your accounts and then recover at least part of the loan. However, if you have exemptions available to you, you may be able to keep all or some of the funds.
When in Doubt, Consult With an Attorney
If you have a significant amount of money in your bank accounts, and think some or all of it may be exempt, it might be worth talking to a local bankruptcy attorney.