When you file for bankruptcy all your assets are divided into the exempt and non-exempt property. While you can keep your exempt property, the non-exempt property is used to pay back your creditors. In the case of Chapter 7 bankruptcy, the trustee liquidates your non-exempt property to repay unsecured debts. In Chapter 13 bankruptcy, you can keep non-exempt property too, but you need to pay an equivalent amount to your unsecured creditors. According to Los Angeles based bankruptcy law firm https://bankruptcy.recoverylawgroup.com/, funds in your checking account can be used to repay your creditors, or kept by the bank if you owe money to them (via credit cards) or can be exempted.
While filing for bankruptcy you are expected to disclose all your assets and income including your checking account balance. In case you fail to do so, and the trustee finds out about it, it will be difficult to protect any money in the account. You could also be accused of fraud. However, there is a possibility that you could protect your checking account using the exemptions provided by the state. Every state and the federal government provide bankruptcy filers with several exemptions to protect their equity in various assets. You could choose from either set of exemptions. You need to specify which property you wish to exempt during the bankruptcy proceedings. For further details regarding the procedure, call 888-297-6023 to speak with bankruptcy lawyers Los Angeles.
Can checking account funds be exempted?
If you can get an exemption on your checking account, you will be able to protect that money from being handed over to your creditors by the bankruptcy trustee. However, most states don’t offer an exemption for checking accounts or cash. Those that offer have very less limit. You could, however, use other exemption to protect this fund, like:
- personal property up to a certain dollar amount;
- cash on hand up to a certain dollar amount;
- Social Security and other federal benefits;
- your wages;
- pension and retirement funds;
- personal injury awards;
- child or spousal support;
- wildcard exemption up to a certain dollar amount.
What if the checking accounts are partially exempted or worse, not exempted?
If the account funds are non-exempt or partially exempt when you file for bankruptcy, you will not be able to keep that money. Any non-exempt property is handed over to the bankruptcy trustee and used to pay your creditors. However, there are certain things you need to remember while dealing with checking accounts during bankruptcy.
- Your accounts freeze. Banks freeze your accounts when they become aware of your bankruptcy. This is done to protect your creditors. You or your attorney could ask for a release of the freeze and the needful is done if the trustee agrees that you are entitled to the checking account funds.
- Clear checks before filing for bankruptcy. If your checking account balance exceeds exempted amount (cheques didn’t clear) when you file for bankruptcy, the account could be freeze and funds regarded as non-exempt property. It is important to ensure that your cheques have cleared before you file for bankruptcy to avoid this situation.
- Business bankruptcy. The trustee can call banks directly in this case, unlike an individual bankruptcy as in the latter case you just must pay an amount equivalent to non-exempt funds in an account.
- Owing money to the bank. If you have a credit card and checking account of the same bank, your bank can use the money in the account to settle the credit card debt in case of Chapter 7 bankruptcy Los Angeles.