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Do I have to close all my bank accounts after a bankruptcy?

Post by Christopher Migliaccio

Bank accounts don’t necessarily have to be closed after a bankruptcy. However, the money in those accounts could become an issue when filing for Chapter 7 bankruptcy. That’s because the assets of those who file Chapter 13 bankruptcy are protected. But with Chapter 7, some types of property have to be sold or used in order to repay the debt that’s owed.

How Bank Accounts Factor Into a Chapter 7 Bankruptcy

The cash in a bank account could be used to help with debt repayment. However, some of it might be considered exempt (protected). Recent earnings may be exempt, for example, as well as public benefits like Social Security or unemployment.

When filing for bankruptcy in some states, individuals can choose whether to file for bankruptcy with the federal or state exemptions. In Texas this is an option. But it’s important to consider all of the exemptions when determining if federal or state bankruptcy exemptions should apply.

Federal Bankruptcy Exemptions 

Federal bankruptcy exemptions could include funds in a bank account stemming from a wrongful death or personal injury recovery.

Examples of federal exemptions include: 

  • lost earnings payments;
  • public benefits;
  • alimony; and
  • child support. 

Another consideration is what’s called a wildcard exemption. This is a certain amount that can be applied to property the individual wants to keep. Under federal bankruptcy, it is $1,225. This means that would be the amount protected in a bank account.

Texas Bankruptcy Exemptions

Under state bankruptcy law, there isn’t a wildcard exemption. Therefore, the money in a bank account may not be protected. However, according to property code 42.001(b) (1), current wages for personal services are exempt (except for the enforcement of child support payments that are court ordered).

Despite limitations in bank account protection, it’s still important to consider other assets that apply under federal and Texas bankruptcy exemptions. This is where an attorney can help in determining what’s in the individual’s best interest.

Importance of Listing Bank Accounts in Bankruptcy Papers 

Attempting to hide assets is detrimental to the case. Schedule B of the bankruptcy papers requires all personal property to be listed. This includes money in bank accounts. Even if it’s believed the funds are exempt, they still must be listed. Then on Schedule C, the individual will list everything that is exempt.

But it’s important to also list the source of those monies such as: 

  • wages;
  • alimony;
  • Veterans benefits; and
  •  more. 
How a Bankruptcy Attorney Can Help 

Bankruptcy laws can be confusing. When it comes to protecting one’s property, the exemptions can vary between those that fall under federal guidelines and those that are state-specific. Because of the many complex issues that can arise, it’s beneficial to seek legal advice.

An attorney can explain what happens to the funds inside a bank account, including which may or may not be protected and the options that could be available.  Contact Warren & Migliaccio at 888-584-9614 to set up a consultation about your Dallas bankruptcy case.

FAQ Category: Bankruptcy

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