What should I do with my bank account when I file bankruptcy? This is a question I often get from clients contemplating filing for bankruptcy protection.
The question generally arises out of two underlying common problems. First, if you are being pursued by your creditors, you risk having your bank account cleaned out by your creditors, and worse, sometimes by the bank itself, without any prior warning. Second, if your bank account has a negative balance or an overdraft balance associated with it, your account will most likely be closed by the bank upon filing bankruptcy. Assuming all things are in order with your bankruptcy, you will likely receive a discharge of the overdraft and negative balance, but it may now be difficult, even impossible to get a new bank account somewhere else.
You’ve heard of the big credit bureaus, TransUnion, Equifax, and Experian to whom your creditors report both positive and negative account information. The banking system has a similar reporting mechanism called “ChexSystems”. Your bank will report you to ChexSystems if your account is closed “for cause,” which generally means the bank was unable to collect an overdraft or negative balance or bounced check fees. When you discharge those debts in bankruptcy, the bank reports that fact to ChexSystems. The negative information will stay on your account for five years. ChexSystems only gathers negative information, no positive information to counterbalance the negative. So when you’re on ChexSystems, you’re on it, and it will be difficult to open a bank account without paying the unpaid balance.
Here’s a practical suggestion. Before you file bankruptcy, try to open a bank account (or credit union account), depositing only the minimum amount required to open it. Your chances of being able to open an account before bankruptcy are better than after filing bankruptcy. The account should be at an institution totally independent and separate from any of your debts. That way the bank won’t take you by surprise by cleaning out your bank account for being behind on another debt you owe them. After doing this, you will have a bank account in good standing in case you need it after the bankruptcy. Hold off for a while before you start switching all of your auto payments and direct deposits to this new bank account. Ask your employer to give you a paper check each pay day, then cash the check at the bank it is drawn on. Pay your bills with money orders. You will have more control over your money this way and be able to spend it on necessary living expenses instead of seeing it disappear when a garnishment hits your bank account.
These are just the basics. Your attorney can help you with respect to your specific situation.
If you are in financial distress, contact Ron Glines, our head Salt Lake City bankruptcy lawyer for immediate help and a free consultation.
