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What Happens to My Bank Accounts If I File for Bankruptcy?

Filing for bankruptcy requires careful planning. Since every client's situation is a little different, your bankruptcy lawyer will need all available information and documentation about your finances, including documents pertaining to your checking, savings, and money market accounts. You may need to take certain steps to protect the money in your accounts before filing for bankruptcy.

Exemption Amounts

During a Chapter 7 bankruptcy, the trustee gains control over all nonexempt assets. These assets are liquidated to pay back the creditors. Any nonexempt funds in any of your bank accounts must be turned over to the trustee. However, since you're filing for Chapter 7 because you don't earn enough money to pay your debts, it's quite possible that all of your funds will be exempt. Exemption amounts vary from state to state—talk to your lawyer about what's allowed in your situation.

Bank Set Offs

Hypothetically, you might have a checking and savings account with Acme National Bank. You may also owe money to the bank, in the form of a car loan, personal loan, or credit card balance. As soon as you file for bankruptcy, the automatic stay goes into effect, and Acme National Bank cannot demand payments from you for these obligations. However, it can use a set off to claim the funds in your account as of the date of the bankruptcy filing. Those funds can be applied to your balance. If you need that money to pay court costs or living expenses during your bankruptcy, consider transferring the funds to a different financial institution.

Automatic Debits

Automatic debits are one of the many conveniences of modern life. In fact, people often sign up for automatic payments after bankruptcy to rebuild their credit scores by avoiding late payments. But before you file for bankruptcy, you'll need to cancel all of these automatic debits.

The law firm of Cutler & Associates, Ltd. in Aurora exclusively handles bankruptcy cases. We've made it our life's work to help Chicagoland residents get their finances back on track. Call us today for a consult at (847) 961-4572, and bring your questions with you.

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