{"id":234,"date":"2011-06-05T20:09:43","date_gmt":"2011-06-05T20:09:43","guid":{"rendered":"http:\/\/www.westcoastbk.com\/blog\/?p=234"},"modified":"2021-05-15T20:27:32","modified_gmt":"2021-05-15T20:27:32","slug":"are-banks-allowed-to-freeze-my-bank-account-after-filing-bankruptcy","status":"publish","type":"post","link":"https:\/\/www.westcoastbk.com\/blog\/2011\/06\/are-banks-allowed-to-freeze-my-bank-account-after-filing-bankruptcy\/","title":{"rendered":"Are Banks Allowed to Freeze My Bank Account After Filing Bankruptcy?"},"content":{"rendered":"

By Ryan C. Wood<\/a><\/p>\n

There are NOT<\/strong> several banks that choose to freeze their customer\u2019s bank accounts if their customers file for Chapter 7 bankruptcy.\u00a0 There is only one and that nefarious bank is Wells Fargo Bank.\u00a0 Why would Wells Fargo Bank freeze the money their customer needs to feed their children or pay their rent when filing for Chapter 7 bankruptcy?\u00a0 How can that be good for business?\u00a0 It should not be good for business yet people still choose to do business with Wells Fargo Bank.\u00a0 It is like Walmart.\u00a0 Walmart receives all kinds of government tax breaks and subsidies yet Walmart does not pay their employees well in light of billions of dollars in quarterly profits.\u00a0 So many people complain about how Walmart pays their employees yet still shop at Walmart perpetuating the harm and encouraging it.\u00a0 Same is true of Wells Fargo Bank.<\/p>\n

Why Freeze Bank Accounts When Filing Chapter 7 Bankruptcy?<\/strong><\/p>\n

The bank\u2019s reasoning is that they are freezing the bank accounts to preserve the bankruptcy estate, and will release the funds once the trustee authorizes the turnover of the funds back to the bank customer.\u00a0 The problem is, the trustees have huge caseloads, and they may not be able to send a letter to the banks immediately to release the funds.\u00a0 Also certain trustees choose to not get involved at all.\u00a0 Until the trustee sends a letter of release to a bank, the customers\u2019 bank accounts remain frozen.\u00a0 This is a huge problem, especially if that is your only bank account, and you have bills that need to be paid, like mortgage payments and utility bills.\u00a0 The bills will remain unpaid until the bank account is released, and in the meantime, you may end up being evicted or have your power turned off.<\/p>\n

The bank\u2019s method of freezing their customer\u2019s accounts was challenged in Mwangi v. Wells Fargo Bank, N.A<\/em>.\u00a0 In Mwangi, the Mwangis\u2019 had several bank accounts with Wells Fargo, and Wells Fargo was also a creditor in the Mwangi bankruptcy case.\u00a0 Wells Fargo placed an administrative freeze on Mwangi\u2019s bank accounts after it found out the Mwangis filed for bankruptcy.\u00a0 Mwangi demanded that the exempted portion of the funds in their bank accounts be released, but Wells Fargo refused.\u00a0 The bankruptcy court concluded that Wells Fargo\u2019s policy did not violate the automatic stay because the funds were part of the bankruptcy estate and Wells Fargo was not attempting to collect a debt; they were only placing an administrative freeze on the bank account to preserve the bankruptcy estate until further notice.\u00a0 Well, as most bankruptcy lawyers<\/a> can attest to, most bank account money is exempted\/protected so teh bankruptcy filer keeps the funds and can use the funds to eat and live.\u00a0\u00a0<\/p>\n

The case then went to the 9th<\/sup> Circuit Bankruptcy Appellate Panel (BAP).\u00a0 The BAP consists of a group of judges under the supervision of the US Court of Appeals who are appointed to hear appeals from bankruptcy cases.\u00a0 The BAP disagreed with the lower bankruptcy court\u2019s decision.\u00a0 It distinguished the Mwangi case from Citizens Bank of Maryland v. Strumpf, <\/em>516 U.S. 16 (1995).\u00a0 In Strumpf, the Supreme Court held that banks may place administrative freezes on a debtor\u2019s bank account while the bank pursues relief from the automatic stay to exercise its right of setoff against the account.\u00a0 In Mwangi, the freeze was not held to assert any right to a setoff that Wells Fargo had; it was a blanket policy that froze the accounts of all customers that filed for bankruptcy.\u00a0 The BAP held that the administrative freeze Wells Fargo placed on Mwangi\u2019s accounts was considered a violation of the automatic stay pursuant to 11. U.S.C \u00a7362(a)(3), which provides \u201c\u2026a petition filed under section \u00a7301, 302, 303 of this title… operates as a stay, applicable to all entities, of\u2026any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate\u2026\u201d\u00a0 By holding an administrative freeze on Mwangi\u2019s account, Wells Fargo was exercising control over Mwangi\u2019s property, despite Wells Fargo\u2019s objections otherwise.\u00a0 The BAP said, \u201cWells Fargo could have paid the account funds to the trustee; it did not.\u00a0 Wells Fargo could have released the account funds claimed exempt to the Appellants when demand was made; it did not.\u00a0 Wells Fargo could have sought direction from the bankruptcy court\u2026.it did not.\u00a0 Instead, it chose to hold the funds until a demand was made for payment that it alone deemed appropriate.\u00a0 If that is not \u201cexercising control over\u201d the funds, we don\u2019t know what is.\u201d\u00a0 Mwangi v. Wells Fargo Bank, N.A<\/em>., BAP No. NV-09-1408-DHPa, 09-24057-BAM 2010 WL 2723204 (9th<\/sup> Cir. BAP. June 30, 2010).\u00a0 The BAP reversed the bankruptcy court\u2019s decision and remanded the case back to the bankruptcy court.<\/p>\n

Wells Fargo then tried to appeal the case to the 9th<\/sup> Circuit Court of Appeals.\u00a0 However, on December 10, 2010, the 9th<\/sup> Circuit Court of Appeals dismissed the case due to lack of jurisdiction.<\/p>\n

Hopefully you will retain an experienced bankruptcy attorney<\/a> that properly advised you about your bank accounts and filing for bankruptcy.\u00a0 The moral of the story:\u00a0 do not have your bank accounts at bank you also owe money with credit cards, vehicle loans or home mortgages.\u00a0 There are no shortages of banks for you to choose from in your area that would be convenient for you to bank with \u2013 just choose one where you don\u2019t owe any money to.\u00a0 Always keep your bank account accounts separate from your debts.<\/p>\n\n\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

There are several banks that choose to freeze their customer\u2019s bank accounts if their customers file for bankruptcy. The bank\u2019s reasoning is that they are freezing the bank accounts to preserve the bankruptcy estate, and will release the funds once the trustee authorizes the turnover of the funds back to the bank customer.<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[13],"tags":[157],"_links":{"self":[{"href":"https:\/\/www.westcoastbk.com\/blog\/wp-json\/wp\/v2\/posts\/234"}],"collection":[{"href":"https:\/\/www.westcoastbk.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.westcoastbk.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.westcoastbk.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.westcoastbk.com\/blog\/wp-json\/wp\/v2\/comments?post=234"}],"version-history":[{"count":7,"href":"https:\/\/www.westcoastbk.com\/blog\/wp-json\/wp\/v2\/posts\/234\/revisions"}],"predecessor-version":[{"id":1786,"href":"https:\/\/www.westcoastbk.com\/blog\/wp-json\/wp\/v2\/posts\/234\/revisions\/1786"}],"wp:attachment":[{"href":"https:\/\/www.westcoastbk.com\/blog\/wp-json\/wp\/v2\/media?parent=234"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.westcoastbk.com\/blog\/wp-json\/wp\/v2\/categories?post=234"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.westcoastbk.com\/blog\/wp-json\/wp\/v2\/tags?post=234"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}