Most banks will let you keep a checking account open when you file for bankruptcy (check with the institution). However, whether you’ll be able to keep the funds in the checking account is a different question entirely. Whether you can keep the funds in your checking account when filing for Chapter 7 bankruptcy will depend on if you:
When you file for bankruptcy, you must submit papers with the court that list everything you own (called the bankruptcy petition and schedules), including your bank account. If you don't list it and the trustee finds out about it, will likely lose the money in the account even if you would have otherwise been allowed to keep all or part of it. Even worse, you could find yourself facing a bankruptcy fraud charge.
Which Property Is Exempt in Bankruptcy?
Bankruptcy exemptions are laws that tell you which property you can exclude from your bankruptcy. If the property is exempt, you can keep it in a Chapter 7 bankruptcy. In a Chapter 13 bankruptcy, you can keep nonexempt property (property that isn’t protected by an exemption), but you’ll have to pay an amount equal to the value of the nonexempt amount in your three- to five-year repayment plan.
The exemptions available to you depend on where you live. Each state has a set of exemptions. Some states allow you to choose whether to use the state exemptions or the federal bankruptcy exemptions. Others only allow you to use state exemptions.
Exemptions aren’t automatic. In your bankruptcy schedules, you’ll identify the property which you are claiming as exempt.
Also, exemptions are available only to individuals. Businesses, such as corporations or partnerships, don’t get to claim exemptions. (Learn more about how bankruptcy exemptions work in Chapter 7 bankruptcy.)
If you can claim the funds in your checking account as exempt, the Chapter 7 trustee assigned to your case won’t be able to use the money in your account to pay creditors. In Chapter 13 bankruptcy, you won’t have to pay creditors an equal amount through your three- to five-year plan.
Most states don’t have an exemption for money in a checking account or even cash. And, for those states that do, the amount is often small, for instance, it’s common for a cash exemption to be as little as $300. However, you might be able to use another exemption to protect some of your funds.
Some common exemptions that might be available to you and that you might be able to use to protect money in your bank account include:
If you have nonexempt money in a checking account when you file for bankruptcy, that money will not be yours to keep. Nonexempt funds must be turned over to the bankruptcy trustee. The trustee will then use this money to repay your creditors.
Here are some other things to be aware of:
(Find out whether it makes sense for a business to file for bankruptcy in Small Business Bankruptcy.)
If you owe money to the same bank that holds your accounts—for example, you have a balance on a credit card with the same bank—your bank will likely have the right to "set off" its debt. That means that if you file for Chapter 7 bankruptcy, your bank could use your bank balance to pay down your credit card debt.
Each state has laws on bank set-off. If you think you may have to file for bankruptcy, it's often safest to have your checking account at a bank that is different from the bank that you owe money to. Most banks allow you to keep your checking account if the bankruptcy.