So you’re thinking about filing bankruptcy, and now you’re wondering what happens to the money sitting in your checking account. Will someone take it? Can you still swipe your debit card at the grocery store? These questions keep people up at night, and honestly, they should. Your bank account is how you survive day to day. At Leinart Law Firm, we walk clients through these concerns all the time. Here’s what actually happens and how you can protect yourself.
Your Bank Account Gets Temporarily Frozen
Here’s something that catches a lot of people off guard. When you file for bankruptcy, your bank will likely freeze your account. It happens fast, sometimes within hours of your case hitting the court system. Banks get nervous. They want to make sure they’re following the rules, and they need time to figure out whether any of the money in your account belongs to them. The freeze usually lasts anywhere from a few days to a couple of weeks. During that window, you can’t write checks, you can’t use your debit card, and you can’t withdraw cash. That’s a problem if you need to buy groceries or put gas in your car. The smart move is to pull out enough cash before you file to cover your basic needs for a week or two. It’s not complicated, but it does require planning.
Why Banks Do This
Banks aren’t trying to be difficult. They’re protecting themselves. If you’ve got a credit card or loan with the same bank where you keep your checking account, they might have what’s called a right of setoff. Basically, they can grab money from your account to cover what you owe them.
A Fort Worth Chapter 7 bankruptcy lawyer can tell you whether it makes sense to open an account at a different bank before you file. Sometimes that one step saves you a lot of headaches.
Exemptions Protect Some Of Your Money
Not all the money in your account is up for grabs. Texas law and federal law both allow you to protect certain funds through what are called exemptions. This is good news.
Money that’s typically protected includes:
- Social Security benefits
- Disability payments
- Retirement income
- Child support you’ve received
- Workers’ compensation benefits
- A portion of your wages
The catch is you’ve got to prove where the money came from. If your account has a mix of exempt and non-exempt funds all jumbled together, things get messy. Keep your protected money in a separate account if you can, and hold onto bank statements that show where deposits originated. The U.S. Courts explain that exemption amounts vary by state. Texas happens to offer some of the strongest protections in the country, which works in your favor.
Trustee Using Money From Your Account
In Chapter 7, a trustee reviews everything you own. Their job is to see if there’s anything that should be sold to pay back your creditors. If you’ve got non-exempt cash sitting in your bank account on the day you file, the trustee might claim it. This is exactly why timing matters so much. You don’t want a pile of unprotected money sitting there when your case gets filed. A Fort Worth Chapter 7 bankruptcy lawyer can look at your specific situation and help you figure out the best approach. There are legal ways to structure things so you keep more of what’s yours.
Practical Steps To Protect Yourself
You can do several things before filing to make the process smoother. Open an account at a bank you don’t owe money to. Keep records showing exactly where your deposits came from. Use non-exempt cash on legitimate expenses like rent, utilities, or groceries before your filing date. Document everything. Trustees appreciate clear paper trails, and it makes proving your exemptions much easier.
What Happens After The Freeze Lifts
Once the trustee reviews your case and confirms there’s nothing they need to collect, your bank unfreezes your account. You get full access back. Life returns to normal, at least when it comes to your banking. Most Chapter 7 cases move pretty quickly through this phase. We’re usually talking one to two weeks before people have their accounts back.
Get The Right Guidance Before You File
Your bank account is just one piece of the bankruptcy puzzle, but it’s an important one. A little preparation goes a long way toward making sure you don’t end up scrambling for cash while your case works through the system. If you’re weighing your options and want to understand how bankruptcy might affect your finances, our team can help you figure out the best path forward. Contact us today.
