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B is for Bank Accounts

B is for Bank Accounts

One of the most common assets that a Chapter 7 or Chapter 13 bankruptcy Debtor (the person filing bankruptcy) has is a bank account. What types of bank accounts must be listed as assets? Any account that the Debtor's name is on (or the Debtor's spouse is on in a joint case) in any capacity. This includes bank accounts that a Debtor may be on that are actually for his children. This also includes accounts that the Debtor may be listed on for 'estate planning' purposes (i.e. when an elderly parent puts him on their account to help avoid probate).

A common issue with bank accounts (and credit union accounts for that matter) that arises in Chapter 7 or Chapter 13 bankruptcy filing is when the Debtor has accounts at a bank that they also owe money to. A bank has a security interest in the Debtor's account at the time of filing. The bank can 'freeze' these funds and seek to enforce this security interest to 'set off' against the loss it will take in the ensuing bankruptcy.

It's simple enough for a perspective Debtor to open new accounts at a new bank (or credit union) that he does not owe money to prior to a bankruptcy filing. A wrinkle that may be overlooked - with sometimes catastrophic consequences - is when the Debtor forgets that they are also joint on somebody else's account at that same bank that they owe money to. What can happen in this situation? That account that dear old mom put the Debtor on for 'estate planning' purposes may be subject to the same 'set off' as if it were the Debtor's own account!

This is why it's imperative for a perspective Debtor to disclose to his Michigan bankruptcy attorney any and all bank accounts that their name is on.


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