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NY Post Reports on Debtors’ Bankruptcy Win … Six Months Later

In December 2014, a New York bankruptcy court sided with debtors against Wells Fargo over some assets the bank froze. The case is noteworthy in and of itself—so more on that in a moment—but what’s interesting is that the New York Post chose to report on the story in late June.


Better late than never, I suppose, but since I didn’t report on the case at the time either, I suppose no one will be hurt if I join the Post, especially because other debtors will benefit if more courts follow the New York one.

The background: Wells Fargo has a policy of freezing debtors’ bank accounts after they file bankruptcy petitions if their deposits exceed $5,000, irrespective of whether Wells Fargo is a creditor. The bank argues that purpose of the program is to preserve the assets of the bankruptcy estate for the trustee.

One married New York couple filed bankruptcy in March 2014, but they squirreled away nearly $7,000 in four Wells Fargo bank accounts to sustain their family through the process. Wells Fargo implemented its policy, and the debtors learned that their money had been seized by the bank when a prepetition check bounced.

Unsurprisingly, the parties began litigating over Wells Fargo’s policy, with the debtors initiating an adversary proceeding for breaching the automatic stay, which protects debtors from collection efforts by creditors. The bank defended itself by claiming that legally, its debt (the deposits) to the debtor was transformed into a debt to the trustee, so no one was harmed.

The bankruptcy court disagreed, citing the Section 362(a)(3) of the Bankruptcy Code, which bars “any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate.” Moreover, the court frowned on Wells Fargo’s $5,000 limit, considering it arbitrary. In other words, the bank was not holding assets for the trustee because it reserved to itself the right to decide who would receive the assets. Ultimately, the duty to disclose and surrender assets to the trustee falls on the debtor via the bankruptcy schedules.

The debtors received $25 in actual damages (not a typo), attorneys’ fees, and other costs. Courts in other parts of the country have sided with Wells Fargo, so it might still be successful on appeal.

The Post article, late though it is, can be found here.

It’s usually a good idea to do what the debtors in this case did, place their cash assets in a bank they don’t owe money to, but if your money is with Wells Fargo or another lender that is proactively “cooperating” with the trustee, then you’ll want an experienced fair debt collection practices acts handling your case.

Rosenberg, Musso & Weiner, L.L.P
26 Court St # 2211
Brooklyn, NY 11242, USA

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