Your bank account is not automatically seized in bankruptcy. Most funds can be protected through exemptions, and your accounts stay open. Here is what you need to know about bank accounts before, during, and after filing.
The most common bank account issue in bankruptcy is setoff. If you owe money to the same bank where you have your checking or savings account -- such as a credit card, auto loan, personal loan, or overdraft -- the bank may freeze your account upon learning of the bankruptcy filing.
Banks have a legal right under 11 U.S.C. section 553 to "set off" mutual debts. In practice, this means they can hold your deposited funds against what you owe them until the court sorts it out.
Under federal regulations, banks must automatically protect 2 months' worth of direct-deposited federal benefits from garnishment or levy. This includes Social Security, SSI, VA benefits, federal pensions, and railroad retirement. This protection applies regardless of whether you file bankruptcy and regardless of which state you are in.
You can open a new bank account after filing bankruptcy. Banks cannot refuse you solely because of a bankruptcy filing, but some practical considerations apply:
In Chapter 13, your plan payment is typically made separately from your bank account:
Your direct deposits continue normally. In Chapter 7, post-petition income (earned after filing) is generally not part of the bankruptcy estate and is fully yours.
The automatic stay prevents creditor freezes. However, your bank may exercise a right of setoff if you owe them money. Switch banks before filing if you have debts with your bank.
Missouri's wildcard exemption covers $600 in any property. Head-of-household wages (90% of last 30 days' earnings) are exempt. Social Security and VA benefits are fully exempt under federal law.
Kansas has no specific bank account exemption, but federal benefit protections apply. Social Security, VA benefits, and public assistance are fully exempt. Banks must protect 2 months of direct-deposited federal benefits.
Yes, if you owe money to your current bank. Open an account at a different institution and move your direct deposits before filing. This avoids the setoff problem.
Yes. Filing does not close your accounts. Some banks may close your account if you owe them money, but they cannot close it solely because you filed bankruptcy.
Direct deposits continue normally. In Chapter 7, post-petition income is generally yours. In Chapter 13, plan payments are typically made through a wage order or separately through TFS.