How to protect bank accounts in bankruptcy
No one would think of a bank going into bankruptcy as it was never considered a bank could fail because of the philosophy too “big to fail”.
“Big” (in terms of value of total assets or assets managed) nobody could think about a bank’s bankruptcy. The public interest in bank evaluation is increased after the bankruptcy of Lehman Brothers that triggered a global financial crisis.
After this incredible and extraordinary event, the situation in the global market degenerated and, as a consequence, the attention on bank trustworthiness increased exponentially. And of course in a situation of bankruptcy bank accounts are one of top priorities to guard.
As when a person files for bankruptcy it doesn’t mean that they’ve to surrender all their money or valuables by closing all their accounts. For the most part, your bank account will not be affected by filing for bankruptcy nor will your accounts be closed automatically.
But just in case it’s also important to know, a few safeguards on how to protect bank accounts in bankruptcy.
- You could hire a lawyer to prepare your petition for bankruptcy, it’s their job to protect your assets.
- However, before you file, it would be wise to make sure that you’re in good standing with the bank that holds your accounts.
- Or consider switching banks if you’ve a credit line that will be discharged in the bankruptcy or overdraft fees wiped out.
- Also opening another bank account with a bank you don’t owe money to and moving your funds to that new account helps too.
Depending upon the country you reside in there are different types of exemptions that could be used to protect your bank accounts.
If you bank with a creditor and you’re behind on payments, some banks have it in their contract that allows them access to withdraw payments automatically and without permission. This is known as a set-off. Unfortunately this can happen before, during, and after bankruptcy.
Again, banks never close bank accounts just because someone files bankruptcy, unless the person owes the bank money that’s being wiped out in the bankruptcy. However, also be careful with credit unions. They, at times, may shut down bank accounts if you file bankruptcy.