What you need to know about your bank account before you file

If you’re about to file bankruptcy, you need to know that your bank may temporarily freeze your accounts once your petition is filed by placing an “administrative hold” on your money.

Banks are allowed to do this because the Supreme Court said they could in a 1995 case. The Supreme Court found that “administrative holds” are different from “setoffs” which are specifically prohibited post-petition by the almighty Automatic Stay.

Setoffs are permanent transfers–administrative holds are merely temporary freezes.

But whatever you call it, having your account frozen can be a disaster, and you need to think about what you can do to control damage.

Think about it, if your paycheck gets deposited the night before your account is frozen, you will not have access to it until the bank says you do. If you pay bills with automatically scheduled electronic funds transfers, they will be stopped and your bills will go unpaid.

The best thing to do is to move your checking and savings to a bank where you don’t owe any money before your petition is filed. You should also make sure all outstanding checks are cashed.

Because Big Credit has merged and sold to the point that there are only a few major players, This finding a bank you don’t owe money to can be tricky business in modern America . Why? Because in this era of mergers and acquisitions, you may not even know that you owe money to a bank where you are also a checking account holder.

I’ve made a handy list (accurate today) of who owns whom.

JP Morgan Chase
Chase Manhattan
JP Morgan
Bank One
Bear Stearns
WaMu

Bank of America
Merrill Lynch
Fleet Boston
MBNA
USTrust
Countrywide

Citigroup
Citicorp
Travelers
SmithBarney

Wells Fargo
Wachovia

A good bankruptcy attorney will help you decide if you’re at risk of a freeze, and talk to you about your strategy before you file.

Don’t think that your friendly local credit union will skip freezing your account. Business is business, and though credit unions typically offer great customer service–your money is theirs at least until it’s not (e.g. post-petition).

Know that money you make post-petition is not subject to freezes. And also know that once the dust settles with your bankruptcy you may be able to return to your old faithful bank. Ask your attorney for more information.

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