Sometimes an odd situation appears in New York bankruptcies. A debtor gets everything in order, files for bankruptcy, and then discovers that one of his or her bank accounts is frozen even though the bank isn’t one of the debtor’s creditors. It’s bizarre but it can happen. One would think the automatic stay would protect you in these circumstances, but it doesn’t, and now you’re stuck trying to pay bills without access to one of your accounts. How did this happen?
This isn’t an issue of who your creditors are but an issue of legality. Banks are allowed to hold funds you deposit in them in custody for the Bankruptcy Trustee in your New York bankruptcy case. The bank isn’t trying to punish you (we hope), but it’s acting as a custodian for the Trustee. After several weeks or months, the Bankruptcy Trustee will decide whether to “abandon” the assets and allow you access to your money.
The good news is that only the balance on the account the day you filed can be frozen. Any subsequent deposits are freely accessible. You might not like that bank anymore, and we can see why. Also, not all banks behave like this, though Wells Fargo has been known to do it in the past, so that’s one bank in particular to be mindful of if you’re planning to file for bankruptcy.
The better news is that freezing of assets by a non-creditor bank is easily preventable. It happens most often to people who represent themselves in their New York bankruptcies or hire an inexperienced New York bankruptcy lawyer to take their cases. These kinds of pitfalls aren’t the only ones you might not foresee. And if you’re worried about what a bank can do that you don’t even owe any money to, you can start to imagine the tricks you might encounter from actual creditors who should be subject to the automatic stay but violate it anyway. A good New York bankruptcy lawyer will know how to avoid these and other traps, such as what to do if you have a direct deposit line to a bank that might freeze your assets. This is all just one more reason to avoid filing on your own and make sure to retain competent representation.