Should I Close My Bank Account Before Filing for Bankruptcy?

Filing for bankruptcy is a significant decision that requires careful planning. One common question people have during this process is whether they should close their bank account before filing. The answer isn’t straightforward, as it depends on several factors. You must also consider whether or not the bankruptcy trustee will question any of your decisions or actions relative to filing bankruptcy.

Here’s what you need to know.

Why Consider Closing Your Bank Account?

There are situations where closing your bank account might seem like a good idea.

For instance, if your bank holds any of your debts, such as a credit card or loan, they could potentially take money from your account to pay off those debts, even if you’ve filed for bankruptcy. This process is known as a “setoff.” If your bank is involved in your financial difficulties, you may want to consider moving your funds to another institution before filing.

Another reason to close your account could be if you’re dealing with a bank that has a history of freezing accounts once a customer files for bankruptcy. Some banks may freeze your account as soon as they learn of the bankruptcy filing, even if you don’t owe them any money. This could leave you without access to your funds when they are most needed.

When You Should Keep Your Account Open

On the other hand, closing your bank account might not always be the best move. If you have a longstanding relationship with your bank, and they aren’t involved in any of your debts, closing the account could create unnecessary complications. You would need to open a new account, redirect any automatic deposits or payments, and manage this transition during an already stressful time.

Additionally, closing your account could raise red flags with the bankruptcy trustee. They might see it as an attempt to hide assets, especially if large sums of money are involved.

Transparency is crucial when filing for bankruptcy. You don’t want any actions to appear suspicious or misleading.

What to Consider Before Making a Decision

Before you decide whether to close your bank account, consider the following:

• Who holds your debts? If your bank is also your creditor, transferring your funds might be a wise decision.
• Will the bank freeze your account? Research whether your bank has a history of freezing accounts after a bankruptcy filing.
• How much you have in a given account. If you have a large balance, closing the account could raise questions with the bankruptcy trustee.

Every bankruptcy case is unique. Seeking professional advice is critical to ensure you make the best decision for your situation.

Speak to an Attorney

Deciding whether to close your bank account before filing for bankruptcy is a significant choice that should not be taken lightly. The right decision depends on your circumstances, and it’s crucial to weigh the pros and cons carefully. Remember, the goal of bankruptcy is to get a fresh start, and making informed decisions along the way will help you achieve that.

If you’re considering bankruptcy and have questions about your bank accounts or other financial matters, it’s wise to consult with an experienced bankruptcy attorney. The Law Offices of Robert M. Geller are here to help. We can guide you through the bankruptcy process and provide the information you need to make the best choices for your financial future. Contact us to schedule a free consultation.