Can my bank freeze or garnish my accounts if I file bankrupty?

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Can my bank freeze or garnish my accounts if I file bankrupty?

I may file for Chapter 7. I have a maxed out unsecured credit card ($14.5k), and a partially used ULOC ($3.5K) funded by my local credit union that I plan on including in the bankruptcy. I also have 1 personal checking account and 3 business checking accounts through this same CU. Can they legally freeze my accounts, or withdraw from any of them if I go forward as planned? Do they need a judgement to do this? Also, should I switch banks before hand if they can?

Asked on January 18, 2011 under Bankruptcy Law, Colorado

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

1) IF the agreements under which you have the credit card and/or the ULOC allow the bank to look to your accounts for satisfaction if you do not pay, they may do this without a judgment--simply excercising their contractual rights. If not, they would need a judgment.

2) At the point at which you file for bankrupcy, all collection action, including freezing accounts and garnishment, will be "stayed," or put on hold, while the bankruptcy works through. Until you file however, collections actions may be taken.

3) Going back to point (1)--if the bank has a contractual right of recourse, it's not impossible that moving or withdrawing the funds could be seen as an attempted fraud on the bank as a creditor.

You're probably best off going ahead with the filing as expeditiously as possible.

 


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