Find Out What Happens to Your Bank Account After Bankruptcy
What will happen to your bank account in the event of a bankruptcy? This is one of the most common questions Arizona residents ask before moving forward with the filing.
In Arizona, certain assets are protected in the event of bankruptcy filing. The chapter under which you file will be determining for these exemptions. Typically, you don’t have to worry about your bank account. Here are the additional details.
Chapter 7 Bankruptcy and Bank Accounts
A checking or savings account isn’t going to be closed automatically in the event of a Chapter 7 bankruptcy filing. You will also retain the right to open new accounts, make deposits and withdrawals in the future.
The amount of money in your bank account, however, could be affected in specific circumstances. A few of the most common ones include the following:
- If the bank account balance exceeds the exemption amount for Arizona, the surplus will be used to cover some of the debt
- If the bank account holder owes the money to the bank, the account balance could be affected
- In some situations, institutions could issue orders to have the sum in a bank account “frozen”
Arizona’s bankruptcy exemptions state that up to 300 dollars in a single bank account on the date of the filing will be protected. If you receive a salary via a bank account, keep in mind that 75 percent of the income or 30 times the minimum federal hourly wage (whichever is higher) will also be protected by the exemption.
A few additional exemptions (for example – the homestead exemption) could be used to protect the money in your bank account. To make this happen, however, you’ll have to partner up with an experienced legal professional that’s familiar with the Arizona bankruptcy regulations and how they could be applied to your specific situation.
Chapter 13 Bankruptcy and Its Impact on Bank Accounts
Generally speaking, a Chapter 13 filing does not qualify as a liquidation bankruptcy. As a result, you do not have to worry about your checking or savings account.
In the case of a Chapter 13 filing, the bankruptcy trustee will be responsible for coming up with a debt payment plan that will be valid for a three to five year period. Once the plan is determined, you can have the specific sum deducted automatically from your bank account every single month. The rest of the money is yours and you’re free to do with it whatever you want.
As a debtor doing a Chapter 13 bankruptcy, you’re also free to open new bank accounts. In this instance, you’ll simply have to meet the respective financial institution’s requirements.
All of these conditions apply to people who are punctual with their monthly payments. If you fall behind on the Chapter 13 plan, the situation will probably change.
When doing a Chapter 13 filing, you should also be aware of the bank’s set off privilege. Whenever you owe money to your bank, the financial institution has the right to set off the debt against the funds in a checking or savings account.
A bank has the right to initiate the set off procedure at any given moment and not solely during a bankruptcy filing. A set off, however, will not occur that often. Banks will often sell the debt to other institutions that will be responsible for handling it. Such institutions do not have the right to carry out an account set off. In addition, an automatic stay comes in effect at the time of the bankruptcy filing. In order to lift the automatic stay, the bank will have to petition the Arizona bankruptcy court.
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