Can You Keep Your Checking Account During Chapter 7 Bankruptcy?

If you’re getting ready to file bankruptcy, it’s normal to be worried about what happens to your bank account when you file. The good news is that in most Chapter 7 bankruptcy cases, nothing happens to bank accounts. Let’s tackle this topic one question at a time. 

Can You Keep Your Bank Account When You File Chapter 7?

Yes, you can usually keep your bank account when you file Chapter 7 bankruptcy. To keep the money in the account, it will need to be protected by an exemption. 

Note that if you owe money to the bank where you hold the account, you may be at risk of a set off, which is when the bank takes money from your account to pay off a debt you owe them. For example, if you have a credit card or loan and a bank account with the same bank, they could use the funds in your account to cover the debt you owe. 

To avoid this, many people choose to move their money to a different bank before filing for Chapter 7 bankruptcy.

Is There a Limit to How Much Money You Can Have in Your Bank Account? 

Yes. The limit is based on the bankruptcy exemptions you’re claiming. Each state has its own exemption laws. Some states permit residents to choose between state or federal bankruptcy exemptions. Others require you to use the state’s exemptions. 

Some, but not many, states have specific exemption laws to protect account balances. If your state has a specific exemption law for bank accounts, the most important thing to check is how much of your bank account balance it protects. There’s always some kind of limit. 

If there isn’t a specific exemption for your account, you may be able to use another exemption. One of the most common is a wildcard exemption, which you can generally use to protect money in your bank account and even cash on hand, but not always. Some states don’t allow bankruptcy filers to use the wildcard exemption to protect money or bank accounts.

Learn more in our article What Are Bankruptcy Exemptions?

What if the Money in Your Account Is More Than the Available Exemption? 

This can happen, especially if you file on payday. If it’s just a matter of fluctuating account balances based on your pay cycle, timing is everything. If you just got paid, go grocery shopping, pay this month’s utility bills or rent, and fill up your gas tank before you file. In other words, spend it on essentials. Chances are, that’s all it takes to get you below the limit. 

Remember that the transaction has to clear for the money to come out of your account. If it’s pending when you file, it’s still considered your money and will be included as part of the bankruptcy estate.

What if You Have More Than You Can Spend on Necessities in Your Bank Account?

In that case, start by asking yourself these two questions: 

• Can I exempt the full amount? The federal bankruptcy exemptions have a pretty generous wildcard, so you may not have to worry about spending the money down.

• What is the source of the funds? Some money is protected based on where it’s from. One example is Social Security funds. A separate exemption protects these funds as long as they’re not commingled (mixed) with other money. That’s why it’s a good idea to keep a separate account that only Social Security funds are deposited into. 

If your funds aren’t protected, your best bet is to spend the money on allowed items before filing your case. Otherwise, the bankruptcy trustee will ask for the non-exempt funds so they can be used to pay your creditors. The trustee will ask for it even if you had to spend the money on necessities and bills after filing. 

What Are You Allowed To Spend the Money On? 

Before filing for Chapter 7, many people spend money on everyday essentials like groceries, rent, utilities, car repairs, and gas. These are considered necessary living expenses and aren’t likely to cause any issues in your bankruptcy case. You can learn more by reading our article on spending money before filing Chapter 7 bankruptcy. 

What To Avoid Spending Money on Before Filing Bankruptcy

It’s usually a good idea to avoid making large or luxury purchases right before filing. Buying expensive things will probably raise a red flag for the bankruptcy trustee.

It's also important to be careful about repaying personal loans to friends or family members. These payments may be seen as "preferential," meaning that the trustee could ask your loved one to return the money. Holding off on personal repayments until after your bankruptcy process is complete may help you avoid complications.

Do You Have To Report Your Checking Account When You File Bankruptcy?

Yes. Your bank account is considered an asset. Assets are listed on your bankruptcy forms. If you have multiple bank accounts (like a checking and a savings account) you have to list each separately. 

The value of this asset is based on the amount of money in the account when the case is filed. It’s important to note that this balance isn’t adjusted for pending transactions or outstanding checks. 

Do They Freeze Your Bank Account When You File Chapter 7?

Generally, no. Especially if the full amount of your bank account funds is protected by an exemption. Some banks (most notably, Wells Fargo) have an internal policy of freezing bank accounts with a balance over a certain amount once they learn about a bankruptcy filing. They’re really not supposed to do this, as it can be quite a headache for the filer to get the account “unfrozen.” 

If all of your banking is done at Wells Fargo and you’re worried about having the account frozen, consider opening a new bank account with a different bank and moving your money to that account before filing your case.

What Happens if You Owe a Debt to the Bank Where You Have a Bank Account?

Generally speaking, nothing much happens once a bankruptcy is filed. Before filing, the bank may take funds out of your account if you default on a credit card or loan payment. That’s called a set off, and the bank may not do this depending on the terms of your credit card agreement or loan. 

Once the bankruptcy petition is filed, the automatic stay prevents the bank from taking funds. As long as your account is in good standing (i.e., it doesn’t have a negative balance) when you file for bankruptcy, you shouldn’t have any issues keeping your account. 

If You Bank With a Credit Union, the Rules May Be Different…

This is especially true if you have a loan or credit card with the same credit union. Your membership agreement with the credit union may give them a security interest in your account balance. In that case, your balance with the credit union may be considered their collateral, just like your car is the lender’s collateral for your car loan. Additionally, your bankruptcy filing may be considered a breach of the terms of your membership agreement. 

Check out our article on credit unions and bankruptcy to find out more about how a bankruptcy filing may affect your credit union membership. 

What Happens to Your Account if You Have a Negative Balance Due to an Overdraft? 

That depends on what you want to do with the account. If you want to keep your account, you’ll have to bring it back to a positive balance after filing. 

Keep in mind that the negative balance can be discharged just like any other unsecured debt. Depending on how much you’re in the red, opening a new account and starting fresh may make more sense.

Check out our article on overdraft protection and bankruptcy for more on this topic. 

What Happens if a Creditor Has a Lien on Your Bank Account? 

Once you file for bankruptcy, the automatic stay will stop the creditor from taking any money from your account, whether they have a lien or not. If the lien is from a judgment on an unsecured debt, like a credit card or personal loan, that debt will be wiped out when you receive your bankruptcy discharge. You might have to do some extra work to officially remove the lien, but filing for bankruptcy gives you the power to make that happen.

One exception to this rule is if the lien is for a debt that can’t be discharged in bankruptcy. This includes things like past-due taxes or domestic support obligations, such as child support or alimony. In those cases, the lien may stay in place even after your bankruptcy case is over.

How Are Joint Checking Accounts Treated in Bankruptcy?

If you share a bank account with someone other than your spouse, you’ll need to list it on your bankruptcy forms, just like you would for any other jointly owned property, like a car.

If it’s your primary checking account and you can claim an exemption to protect the full balance, nothing should change. But if you’re listed on someone else’s account — like a relative’s primary account — it might be smart to remove yourself before you file for bankruptcy. Just make sure you mention this on your Statement of Financial Affairs and be ready to show the bankruptcy trustee that you didn’t make any deposits into the account recently.

If you’re still on the joint account when you file, whether the trustee can touch the account will depend on your state’s laws. If you’re listed on a parent’s or other relative’s account as a precaution and they have a lot of money in it, it’s a good idea to talk to a bankruptcy attorney before filing your case to make sure you handle things properly.

Can You Get a Checking Account After Filing Chapter 7 Bankruptcy?

Yes, you can open a checking account after filing Chapter 7 bankruptcy. In fact, it might even be easier than before because your debts will have been wiped out by the bankruptcy discharge, which can make you less of a risk in the eyes of the bank. 

For many people, bankruptcy provides a fresh start, and opening a new checking account can be an important step in reentering the banking system and rebuilding your financial life.

Let’s Summarize...

As long as the money in your account is protected by an exemption, your bankruptcy filing won’t affect it. Your case trustee may want to see some bank statements as part of their review of your case but they won’t contact your bank.

If you have too much money in your bank account or you’re worried about how to protect your money in bankruptcy, you can set up a free consultation with an experienced bankruptcy lawyer to get legal advice about your specific case. If you have a simple Chapter 7 case, you may be eligible to use Upsolve’s free filing tool. You can also take our quick debt screener to see which other debt relief options you may be eligible for if you aren’t sure if bankruptcy is your best option.