You can keep a bank account during bankruptcy, but the court may freeze it temporarily and any money in it may go toward your debts
When you file for bankruptcy, your bank account does not automatically close. However, the court takes control of your money to pay creditors. If you have cash in the account when you file, the trustee — the person appointed by the court to handle your case — can take it unless the money is protected by exemptions, which are rules that let you keep certain assets.
The exact outcome depends on which type of bankruptcy you file (Chapter 7 or Chapter 13), how much money is in the account, and what exemptions your state allows. Most people do keep a bank account throughout the process, but they often have to open a new one because the old account gets frozen when the trustee is notified.
Key Takeaways
- Your bank account may be frozen when the court is notified of your bankruptcy filing, and any balance may be taken to pay debts unless state exemptions protect it.
- Chapter 7 bankruptcy can result in the loss of money in your account, while Chapter 13 lets you keep the account and make payments through a court-approved plan.
- Most states protect a small amount of cash in a bank account (often $1,000 to $2,500), but the exact amount varies by state and the type of account.
- You can open a new bank account during bankruptcy, and many people do once the trustee has taken control of the case.
- The trustee must be told about all bank accounts, and hiding money or closing accounts before filing can result in serious legal consequences.
How the trustee finds and accesses your bank account
When you file for bankruptcy, you must list every bank account you own on the official forms you submit to the court. The trustee uses this list to contact your bank and place a hold on the account. The bank is legally required to freeze the account once it receives notice from the court.
The trustee can then withdraw money from the account to pay your creditors, but only the amount that is not protected by exemptions. If your account balance is small enough to fall within your state's exemption limit, the trustee may leave it untouched. If the balance exceeds the exemption, the trustee takes the difference.
Chapter 7 bankruptcy and your bank account
In Chapter 7 bankruptcy, you liquidate — meaning the trustee sells your non-exempt assets to pay debts. Your bank account is considered an asset. Any money in it above the exemption amount will be taken.
For example, if your state exempts $2,000 in a bank account and you have $5,000 when you file, the trustee takes $3,000. The remaining $2,000 stays in the account. Chapter 7 cases typically close within three to six months, at which point the freeze is lifted and you can use the remaining money normally.
After the case closes, you can keep the same account or open a new one. Many people open a new account straightforward because the old one has been frozen and the process of unfreezing can take time.
Chapter 13 bankruptcy and your bank account
In Chapter 13 bankruptcy, you keep your assets but agree to pay debts through a court-approved repayment plan over three to five years. Your bank account is not liquidated. The trustee does not take money from it directly.
Instead, you make monthly payments to the trustee, who distributes the money to your creditors according to the plan. Your bank account remains yours to use for living expenses and the monthly trustee payment. The account may still be frozen initially while the court reviews your case, but once the plan is approved, the freeze is lifted and you regain normal access.
State exemptions determine how much you can protect
Every state has exemption laws that protect certain amounts of money and property during bankruptcy. These laws exist because the court recognizes that you need some cash to live on while the case is ongoing.
Bank account exemptions vary widely. Some states protect $1,000, others protect $2,500 or more, and a few protect nothing at all. Some states let you choose between state exemptions or federal exemptions, which offer different protections. You must know your state's exemption amount before you file, because it directly affects how much money you lose.
Your bankruptcy attorney or a legal aid office can tell you the exact exemption for your state and whether you may have access to for federal exemptions instead. This information is essential to understanding what will happen to your account.
Opening a new bank account during bankruptcy
You can open a new bank account while your bankruptcy case is pending. Many banks will open an account for someone in bankruptcy, though some may require a deposit or use a second-chance banking product designed for people with financial difficulties.
A new account is often practical because your original account will be frozen and may take weeks to unfreeze after the trustee finishes. Opening a new account lets you receive paychecks and pay bills without waiting. You must disclose the new account to the trustee if you open it after filing, but this does not usually cause problems as long as you are honest about it.
What you must disclose and what happens if you hide money
You are required by law to list every bank account, savings account, and money market account on your bankruptcy forms, even if the balance is zero or very small. Hiding an account or closing one right before filing to move money elsewhere is fraud. The trustee investigates by reviewing your bank statements and tax returns, and hiding assets can result in your case being dismissed, your discharge being denied, or criminal charges being filed against you.
The trustee is not looking to catch you in a trap — the goal is to may support creditors are treated fairly. Being honest about what you own, even if it means losing some money, is always the safer and legally correct path.
Frequently Asked Questions
Will my bank close my account when I file for bankruptcy?
Your bank will not close the account, but it will freeze it when notified by the court. The freeze typically lasts until the trustee completes the review of your assets, which can take several weeks to a few months depending on the type of bankruptcy.
Can I keep money in my account if I have a joint account with someone else?
Joint accounts are more complicated because both account holders have legal rights to the money. The trustee may freeze the entire account, and the other account holder may need to prove their portion of the funds to recover it. Discuss joint accounts with your bankruptcy attorney before filing.
What if I receive money in my bank account after I file for bankruptcy?
Money deposited after you file is generally yours to keep, though the trustee may still have some claim to it depending on the source and timing. Paychecks, tax refunds, and other income received after filing are usually safe, but inheritances or settlements may be treated differently. Tell your attorney about any significant deposits.
Do I have to use the same bank after bankruptcy is over?
No. Once your case closes, you can bank anywhere you choose. Many people switch banks straightforward to start fresh, and there is no legal requirement to stay with the bank that froze your account.
How much money should I keep in my account during bankruptcy?
Keep only what you need for when ready living expenses and the monthly trustee payment if you are in Chapter 13. Large balances attract the trustee's attention and may be taken. Your attorney can advise you on a safe balance based on your state's exemptions and your situation.