Bankruptcy is a legal process, which allows a debtor to get a fresh financial start. Well, bankruptcy can be a good option for people who are unable to manage their debts, but there are some risks involved in it.

In addition to this, depending on the type of the bankruptcy you file, your cash asset, savings account, and checking account can be at risk.

Chapter 7 and Chapter 13 are the common personal bankruptcy options you can opt for.

What happens to your savings and checking account in Chapter 7 and Chapter 13 bankruptcy?

Will you lose your checking or savings account?

What happens to your accounts in bankruptcy?

Let's discuss in detail:

What happens with your checking and savings accounts in Chapter 13 bankruptcy?

Because you need to make the repayments as per the repayment plan provided by the court.

You can set the automatic deduction from your bank account.

Even the debtor is free to open a new bank account with the court's approval.

However, make sure you make the payments each month and pay back the debt within the life of the repayment plan.

In short, in this bankruptcy, a debtor can keep most of the personal assets including savings account and enough income to manage the repayment plan to pay most or all the debts within the time (3-5 years).

However, you shouldn’t use the money on buying the useless thing. You have to prove that you have used the money for buying essential items. Thus, you need to keep the receipts.

What happens with your checking and savings accounts in Chapter 7 bankruptcy?

Chapter 7 bankruptcy is a liquidation process. In this process, the trustee will take over the debtor's all nonexempt assets and sell them to repay as much of the outstanding debt as possible.

But, there are some factors that can affect the status and amount of a debtor's bank account in filing Chapter 7 bankruptcy.

• If the debtor's total bank balance exceeds the allowable exemption amount.
• If the debtor owes money to a bank with which the funds are deposited.
• If a particular bank or financial institution has the policy of freezing the debtor's bank accounts in filing Chapter 7 bankruptcy. For example: Wells Fargo and Union Bank.

The exemption is the key to protect bank accounts in Chapter 7 bankruptcy.

Remember, the cash assets in your savings accounts and checking accounts should be exempted. Otherwise, the trustee will take the cash assets to pay the creditors.

Some states allow the debtor to use unused homestead exemption amounts to safeguard cash assets and bank accounts.

Some states don't have an exemption for bank account funds. If you belong to such state, then you can use a wildcard exemption. By the help of wildcard exemption, a debtor can protect a savings account up to a specified amount.

Most of the states offer exemptions for a semi-pricey car, a portion of home equity, trade tools, and some household goods.

The source of the money in your bank account play the vital role in deciding whether or not the amount can be exempt.

Try to use the funds in your bank account on paying necessary bills (utility, gas, grocery) before filing bankruptcy.

Paying others’ bills (relatives and friends) will not be exempted.

Remember, if you transfer money to someone else's account, it will be considered as fraudulent.

Some banks have the policy regarding exemption. They can place an administrative freeze on your bank accounts when you file Chapter 7 bankruptcy. Thus, you should ask about this policy before opening an account in the bank.

Bank and financial institutions have right to “Set-Off” a debtor's bank account.

However, the bank can’t "set off" your accounts, especially on credit card debt, because banks usually sell the debt to the collection agencies when they find the debtor is delinquent.

It will prohibit your banks to "set off" your account. The automatic stay prohibits any sort of collection from the date of filing bankruptcy. From that day itself, you get full protection and the benefit of bankruptcy.

If you think some or all of your money in the bank account can qualify for the exemption, then you should hire a bankruptcy attorney for help.