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What Happens to My Bank Account When My Spouse Files Bankruptcy?

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I’ve discussed married couples in New York bankruptcy and what happens to a joint account in bankruptcy, but there is one more common situation that debtors’ spouses need to be aware of: bank accounts belonging to non-filing spouses.

It’s easy to imagine that this should be a non-issue. Your assets are in your name, so if your spouse declares bankruptcy, then it doesn’t affect you. In fact, this is true for most circumstances, but there are some situations couples should avoid. They mainly center on commingling assets that a trustee can get at.

Most important is if your spouse deposits his or her income directly into your bank account. In many marriages this isn’t controversial, particularly if the spouse whose name is on the account tends to do much of the household purchases. In bankruptcy, though, the legalities matter, and a chapter 7 trustee will want to recover the income flowing to the account to repay the creditors.

Another common situation is when a debtor places the proceeds of an asset sale into his or her spouse’s bank account. This can cause all kinds of difficulties. Chiefly, it raises the possibility of a fraudulent conveyance. The filing spouse might be selling some property to a third party for less than it’s worth with the intent of repurchasing it after bankruptcy. The trustee can try to recover the assets from your account or simply demand that your spouse cough up the market value of the asset to the trustee. On top of that, your spouse will be denied any exemption that would have protected the asset in the first place.

The same results would come about if your spouse places the money in an account that he or she had access to but not ownership. This would include an account for elderly relatives or even children.

Importantly, in chapter 13, the results would be different—and probably less harmful to your account directly. Instead, the trustee would require your spouse’s repayment plan to include the amount deposited in your account so that the unsecured creditors would be repaid.

Using spouse’s accounts and other activities that often amount to fraudulent conveyances are a common occurrence in bankruptcies filed by debtors who hire inexperienced lawyers or don’t hire any at all. If you are concerned that your spouse is putting money in your account when he or she should not be, then direct your spouse to an experienced New York bankruptcy lawyer to discuss the case.

For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.

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