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Bank Accounts in Minnesota Personal Bankruptcy

Here is an issue that I think a lot of bankruptcy lawyers just ignore. Strictly speaking it's not part of preparing or filing the case. When it comes to what I consider part of my job, however, I follow the rule of what would I expect of my lawyer if I were the client. I believe if I were the client, I would expect to be advised about this.

When filing a personal bankruptcy there is a substantial danger that your savings and checking accounts will be seized or frozen by your bank or credit union. Some banks and credit unions are worse than others when it comes to this despicable practice. If your lawyer has been paying attention, he or she will know which are the problem banks or credit unions in your community when it comes to this problem. Here in Minnesota, Wells Fargo is the worst.

Typically if the bank or credit union is one or your creditors, you can expect that institution to seize your accounts as soon as they are notified of the bankruptcy. If this is not planned for it can result in quite a surprise - checks bouncing, a debit card that has stopped working, and the evaporation of money you thought you had.

You should expect your bankruptcy attorney to coach and advise you as to how this is to be avoided. What I tell my clients is that if they have an account with a bank or credit union which they owe money to, that account should be closed well in advance of the filing of the bankruptcy case - whether it's a Chapter 7 bankruptcy or a Chapter 13 bankruptcy. If you don't close that account, the bank or credit union will claim a right of setoff against your money in the account, which is a fancy way of saying that they will seize the money.

Once they seize the money you won't get it back - or at least usually won't. So the thing to do is to close all such accounts before you file your bankruptcy case. It takes planning of course. I'm not saying you should try to live without a checking account. All you need to do is open an account at a bank which is NOT one of your creditors, and get all your automatic deposits and automatic withdrawals up and running with the new account before we file your bankruptcy case.

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