The automatic stay in bankruptcy will allow a debtor to protect their assets from collection by creditors. In the period just before and just after filing for bankruptcy, however, you may want to take certain steps to protect the money in your bank account. You should try to pay off any necessary bills from your bank account before filing for bankruptcy. This will reduce the amount in your account and thus also reduce the amount that the bankruptcy trustee can take from it. The trustee will be entitled to take any funds in your bank account that do not qualify for an exemption. Bank account exemptions are unusual and do not cover much money.
When a bank discovers that an account holder is filing for bankruptcy, it might freeze their account to protect the funds in it for creditors. If the bank freezes your account, you can ask the bankruptcy trustee to contact the bank and get the freeze lifted so that you can access your account.
Be mindful of preferential transfers before filing for bankruptcy. Preferential transfers are payments that unfairly favor one creditor over another. For instance, a $1,000 payment to a sister for a loan when the filer has higher-priority debts may be a preferential transfer subject to reversal. A filer may face fines and even imprisonment if they do not disclose preferential transfers when filing for bankruptcy.
Set Offs by Banks and Utility Companies
Some bank account holders may have signed up for a credit card or a loan through the bank at which they hold the account. This can give the bank a right to a set off, which means that it can take funds out of your account to pay off the loan or credit card debt. If you are considering filing for bankruptcy, you may want to ensure that your loans and credit cards come from financial institutions at which you do not have an account with funds.
If you have given a security deposit to a utility company, it may be able to use that deposit as a set off if you owe payments to the utility company when you file for bankruptcy. You may want to postpone filing for bankruptcy until you have caught up with payments so that you do not need to provide a new deposit. Or, if you are expecting a set off, you can add more funds to your security deposit before you file. However, the utility company cannot cease providing services based on non-payment of debt when you file for bankruptcy.
Open a Bank Account
It may be a good idea for an individual to open a bank account with a bank where they do not have any debt to avoid set offs and provide another banking option if the bank where the individual holds debt closes their account.
Creditors may continue to make automatic deductions that you previously authorized until they receive notice that you have filed for bankruptcy. This may take a week or so unless you notify the creditor on your own or through your attorney, which may expedite the process. Notifying the creditor involves sending them a fax or email with a letter providing the filing date, case number, and court.
You should try to stop any previously authorized deductions from a bank account, paycheck, or credit card in advance. This may not happen immediately, so you should allow some time between stopping automatic payments and filing for bankruptcy. Otherwise, you may face difficulties in meeting your necessary expenses until the creditor stops making deductions.
A debtor should address a situation in which a creditor has authorization to take money from a bank account or paycheck to pay a debt that can be discharged. You also should address a situation in which you have allowed a company to charge your credit card for ongoing services.