Legally reviewed by Allen A. Kolber, Esq. - The Law Offices of Allen A. Kolber, Esq., P.C.
Key Takeaways
- New York’s cash exemption is available only if you are not claiming the homestead exemption on a home.
- What counts is your balance on the filing date, even if checks or charges have not yet cleared.
- A bank that holds your loan or credit card can apply your deposits against that debt.
- An account you fail to disclose can cost you funds you were otherwise entitled to keep.
You may assume that, when filing for Chapter 7 bankruptcy, the first thing the trustee is going to go after is your bank account. But there is a way to protect your accounts and their funds. Read on to discover the possibility of keeping your bank accounts open during a Chapter 7 bankruptcy and how a seasoned Rockland County bankruptcy attorney at The Law Offices of Allen A. Kolber, Esq. can help you protect this asset.
Can I Keep My Bank Accounts Open if I File for Chapter 7 Bankruptcy?
Importantly, keeping your bank account open and keeping the funds within your bank account are two separate matters.
First of all, most banks allow Chapter 7 bankruptcy petitioners to keep their accounts open as they undergo their proceedings. Though it is in your best interest not to assume this is your case, but instead to personally confirm this with your institution.
Secondly, you must list your bank accounts in your bankruptcy petition and schedules. This does not necessarily mean that your bank accounts and their funds are going to be taken away. However, if the trustee discovers that you neglected to disclose certain accounts, then you may lose these funds, even if you would have otherwise been allowed to keep them. What’s more, you may ultimately be up against a bankruptcy fraud charge.
What Bank Account Funds are Exempt in a Chapter 7 Bankruptcy?
Thanks to bankruptcy exemption laws, you may be able to maintain certain bank account funds during your Chapter 7 bankruptcy filing. This is because the trustee will be barred from using this money to pay off your creditors.
Specifically, New York offers a cash exemption of up to $6,825 that covers deposit account balances, savings bonds, and expected tax refunds. However, this exemption is only available if you are not claiming the homestead exemption on a home. If you do claim the homestead, you will need to rely on the smaller wildcard exemption of $1,325. These figures took effect on April 1, 2024, and will be adjusted next on April 1, 2027. As such, you should confirm the amounts applicable on the day you file.
Anything above this exemption amount on your filing date may be taken by the trustee, even if you still have outstanding checks or charges that have not cleared. This is why, to keep your balance low, it is best to pay off all your necessary bills before filing for bankruptcy.
With that being said, other exemptions that may be at your disposal in a Chapter 7 bankruptcy are as follows:
- Your cash on hand.
- Your personal property.
- Your recurring wages.
- Your Social Security or federal benefits.
- Your pension or retirement funds.
It is worth mentioning that the aforementioned exemptions may only be up to a certain dollar amount. What’s more, they are not written off automatically. Rather, you are required to identify these funds and claim them as exempt in your bankruptcy schedule.
What Can Your Financial Institution Do to Your Account?
The trustee is not the only party who may have an interest in your account balance. Your bank has its own rights, and they operate differently, depending on whether or not you owe the bank money.
Freezes
Some banks will place a temporary hold on an account once they learn a customer has filed bankruptcy to determine what belongs to the bankruptcy estate before releasing any funds. This is a bank practice, not a legal requirement, and it should not reach money you earned and deposited after your filing date.
If the bank is withholding post-filing funds that you need to live on, you should promptly contact both your attorney and trustee, rather than hoping the matter resolves itself.
Setoff, if You Owe the Same Bank
One of the most risky things about pursuing bankruptcy is something that many people do not anticipate. If you keep a checking or savings account at the same financial institution that holds your credit card or car loan, the Bankruptcy Code allows the bank’s right of setoff. This means the bank can apply what it owes you against what you owe it, provided both debts exist prior to filing.
The practical solution is to know where your accounts and debts overlap before filing, as moving deposits to an unrelated financial institution is typically easier beforehand than afterwards.
Contact Our New York Bankruptcy Law Firm Today
All in all, there is no time like the present to get your financial stability back on track. So reach out to a competent Rockland County bankruptcy attorney from The Law Offices of Allen A. Kolber, Esq. today.
