Why Does It Matter Where I Bank?
Often, clients come in for a Debt Strategy Session and we are looking at different options when the question comes up about what bank their bank accounts are at (checking and/or savings accounts). This is a really important question because if bankruptcy is one of the options we are talking about, Wells Fargo accounts can cause a big problem.
Wells Fargo will freeze your account balance when you file for Chapter 7. There is some debate about whether the total balances have to be over $5,000 or not for them to freeze, but I would rather not take a chance with my client’s rent money.
This is also an important question if you are a signer on someone else’s account. You may not have much money in your accounts, but if you are the signer on your mom’s account with $50,000 in it, mom is not going to be thrilled when her account is frozen and/or the funds are transferred to the Chapter 7 trustee. There is also the issue of proving that the funds are not yours, which put all of the funds at risk in the bankruptcy.
What Can I Do?
There are a couple of strategies that we use when we find out a client has a Wells Fargo bank account and we are looking at bankruptcy options.
First, change banks. Go find a nice bank that doesn’t have a habit of freezing its customers accounts.
Second, if you really want to keep that Wells Fargo account, it is an option to take the funds out of the account before filing, disclose that you have the funds either in cash or a cashier’s check, and then deposit them again after the filing of the bankruptcy. This is a rather convoluted option, but we have had clients who insist that they keep the Wells Fargo account. The important part of this is disclosing exactly what we did so that it is all clear that nothing is being hidden.
Third, you can take the risk that they won’t freeze your account if the combined balances are less than $5,000. But, be sure that your balances are really less than $5,000. This choice bit a debtor one time because he forgot that he was on his aunt’s account and she had a lot of money with Wells Fargo. Accounts were frozen and it was a mess.
In conclusion, choose your friends and your banks wisely. Make sure you get good advice on what you can expect for all of the various options you are considering.
This is just a basic overview and is not legal advice specific to your situation. If you have questions about your rights when it comes to debt and credit, you should speak with an attorney in your area for legal advice. If you live in California or North Dakota and would like to speak with Jen Lee Law regarding your situation, please schedule an appointment.