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Bank Accounts And Bankruptcy

Bank Accounts and Bankruptcy

When considering filing for Chapter 7 bankruptcy, you may worry about what will be taken and if you will still have money to survive. Rest assured, the object is to help you survive, not to leave you homeless and destitute. While your property and money will become assets of the bankruptcy estate when you file, the accounts themselves are still yours. In most cases, however, the money in your bank account should be shielded by an exemption and thereby protected. Remember that the idea is to give you a fresh start, not to penalize you and make your life more difficult.

ACCOUNT ASSETS

In your bankruptcy paperwork, you will list your bank accounts and cash as separate assets on your Schedule A and B forms. The account balance for each on the date of filing will be the value of the asset. You should end any automatic withdrawals prior to filing and also account for any outstanding checks. Once you file a balance, that is the amount of money that must remain in the account. There is, however, a max amount of money that you can have in your account based on the exemptions you plan to claim on your Schedule C form.

EXEMPTIONS

Exemptions allow you to keep the exempt items that you claim when filing for Chapter 7 bankruptcy. Nevada is unique in that it has opted out of all federal exemptions, so the only ones that apply are state exemptions. However, if you are a married couple, you are able to double your exemption in Nevada.

The Homestead Exemption in Nevada is enormous compared to other states at $605,000. The only catch is you would need to file a Homestead Declaration in your county recorder’s office before you officially file for bankruptcy. This enables you to claim the equity, or what you’ve already paid for, in your house as an exemption. You cannot, however, double this exemption if you are married.

CHANGING BANKS

If you owe money to a bank where you also have your checking and savings account, you may want to consider opening an account at another bank. You can also withdraw the cash from the account and hold it until after you file. If the money remains in your account, the bank can claim the money as a form of debt repayment. To prevent this or an account freeze from happening, be sure that you have your account squared and balanced. If you do choose to close your account, be sure to keep records of the numbers and the date you closed it for your disclosure paperwork.

FREEZING ACCOUNTS

While a frozen account can be very difficult to navigate, preparing ahead of time and understanding why accounts are frozen can help. The bank is usually trying to protect an asset that is part of the bankruptcy estate, especially if you owe money to the bank. Be sure to contact the bank if your account is frozen to see if it is for an offset against your debt to the bank or to protect it as an asset of the estate.

In order to offset the debt, the bank must first file a claim with the court for permission to apply part of the balance to the debt owed.  If the bank is protecting the asset, your trustee is the best person to help guide you. They can help you determine if you can claim an exemption for the funds, what kind, and how to get the funds released. This process can get complicated and take a while, but it is important to let your trustee help.

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