Checking Accounts in Chapter 7

Bankruptcy Attorneys Advocating for Debtors Throughout DuPage County and Nearby Communities

Chapter 7 bankruptcy is appropriate for people experiencing financial distress. By discharging debts, individuals will not be held personally liable. When filing for bankruptcy, you may wonder whether you can keep funds in your checking account. Some money may be protected by an exemption, while other funds may be used to repay creditors. At the Bankruptcy Center of Illinois, DuPage County Chapter 7 bankruptcy lawyers can help you during the process of discharging your debt. Our skilled attorneys aggressively protect the interests of our clients and are dedicated to providing effective and efficient representation.

Checking Accounts in Chapter 7 Bankruptcy

When an individual files for Chapter 7 bankruptcy, they may maintain their checking account with a banking institution. However, the bank has the right to recover funds from the account if you owe a debt. Additionally, the funds within the account would be maintained if they are exempt under Illinois or federal laws.

In an initial filing for Chapter 7 bankruptcy, you must list all checking accounts that you own. If you fail to disclose an account, there may be severe consequences, from loss of finances to a criminal charge. Additionally, it is important to understand that not everyone qualifies for Chapter 7 bankruptcy. You must pass the means test. If you earn less than the state median income, you automatically pass. If you earn more, you may still be eligible for Chapter 7 if you can show that your monthly income is used to pay reasonable and necessary expenses and there are no funds to pay creditors. A skilled bankruptcy attorney can help you understand your options.

Claiming an Exemption for Checking Account Funds

Bankruptcy exemptions refer to laws that state the type of property which is excluded from bankruptcy. In other words, “exempt” means that a trustee cannot take it and use the funds to pay your creditors. Property that is exempt may be maintained throughout a Chapter 7 bankruptcy. Exemptions vary by state, and certain states only allow either federal or state exemptions. The advantage of claiming funds within a checking account as exempt is that a Chapter 7 trustee will not be able to repay creditors using money in your account.

Money in a checking account or other cash is not specifically exempt from Chapter 7 bankruptcy. However, there may be a small cash exemption. In some situations, the source of the cash may provide an exemption. For example, child or spousal support, personal injury proceeds, and retirement funds may be exempt. Government benefits may also be exempt. A debtor can claim an exemption of wages, up to a set limit. It may be necessary to have a separate account only for funds that are exempt. A wildcard exemption also allows creditors to choose property and claim it as exempt, up to a specific dollar amount.

Non-Exempt Funds May be Turned Over to a Bankruptcy Trustee

A bankruptcy trustee may take responsibility for any non-exempt cash and use it to repay creditors. Additionally, it is advantageous to make sure that checks have cleared before filing for bankruptcy. This is because if the balance is higher than expected on the day of filing, you will be required to turn over non-exempt funds.

A trustee may also be asked to release a freeze, if the bank has instituted an account freeze. Banks may hold assets within a checking account for creditors to collect debts. If you can successfully demonstrate the funds are partially exempt, then the freeze may be released.

Retain a Dedicated DuPage County Bankruptcy Attorney

The process of filing for bankruptcy can be complex, and requires careful attention to detail. Experienced DuPage County bankruptcy lawyers will evaluate your financial needs, including assessing your checking accounts. We offer solutions designed for the particulars of your situation, and can help with questions surrounding checking accounts in Chapter 7 bankruptcy. Our office proudly helps clients throughout DuPage County and can be reached by calling (773) 993-0024 or through our online form.