Reasons to switch to a different bank or credit union include:
- Avoiding having your bank account temporarily frozen. Some banks like Wells Fargo have a policy to place an administrative freeze on any account of a newly-filed Chapter 7 debtor with a balance exceeding $5,000. Other institutions like Union Bank are even more strict on this issue. One colleague told me about a case where Union Bank had frozen a debtor's bank account that contained only $16. In theory, the banks are protecting assets of the bankruptcy estate. In reality, this type of bank policy creates a huge inconvenience to customers and does little to preserve bankruptcy estate assets.
- Ending automatic withdrawals. Many debtors set up automatic withdrawals taken from their bank account to pay credit card bills. Even with the filing of a bankruptcy, there is not guarantee that automatic withdrawals will stop. It is easier to close a bank account than to get money back that a creditor improperly withdrew from your account.
- Avoiding set offs. Sometimes debtors bank with an institution that has also issued credit cards to them or provided other forms of credit. It is not uncommon for a bank to claim money from a debtor's bank account as a set off against other money owed by the debtor. Closing your account or keeping a low balance will minimize the risk of a claim of set off.
UPDATE: Wells Fargo completed its purchase of Wachovia in December 2008. I have heard from colleagues in other parts of the Wachovia is now engaging in this same practice, so debtors filing for bankruptcy should strongly consider moving their money from Wachovia before filing their case.
About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.