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What Happens To Your Bank Account in Chapter 13

By Cathy Moran

chapter 13 bank account

Those considering filing a Chapter 13 bankruptcy worry about “what happens to my bank account?” Will the trustee take all the money? How do I pay my living expenses after I file?

The short answer is: nothing changes.

The account remains yours and available for all the expenses of day to day living. Because, in Chapter 13, you remain in possession and full control of all of your assets.

The Chapter 13 bankruptcy bargain is that you make a monthly plan payment to the bankruptcy trustee in exchange for keeping your assets and ultimately, discharging your debts.

How your monthly plan payment is determined

One caution: sometimes credit unions cancel the membership of someone who has filed bankruptcy and causes a loss for the credit union.

When your bank balance matters

What is important about your bank balance when you file is that it influences how much you repay your creditors in Chapter 13. A basic rule in Chapter 13 is that creditors must get at least the same amount of payment in 13 as they would have if you’d filed Chapter 7.

So, if you have a significant bank balance that exceeds the exemptions available to exclude it from the case, you may pay more over time than if your balance was smaller.

Pay attention to bank’s right of setoff

If you owe your bank money on a personal loan, common law gives the bank the right to set off your debt to the bank against the money in your bank account. That right gives the bank, in effect, a lien on your funds that it holds.

Remedy: see that your bank balance is minimal when you file, to minimize the amount the bank may claim is theirs. By law, however, any money you deposit in that account after you file bankruptcy is not subject to set off.

Note too that federal law provides that set off is not available to the bank to collect on a credit card that it issued. So you don’t have to worry about your balance if your only debt to the bank is the credit card the bank gave you.

Watch out for automatic payments from your account

You do want to review what payments are made automatically from your bank account. You can continue automatic debits that pay for ongoing living expenses like insurance, cell phone, or utilities.

You want to stop automatic payments that are going to credit cards, personal loans, or taxing authorities. Debts that exist on the day you file are subject to the bankruptcy case. Those creditors must file a proof of claim in the bankruptcy case, and wait for payment, if any, by the Chapter 13 trustee.

Usually, car loans are paid through the Chapter 13 plan. Make sure to ask your attorney how your plan treats your car loan.

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Filed Under: Chapter 13, How bankruptcy works

About Cathy Moran

I'm a veteran bankruptcy lawyer and consumer advocate in California's Silicon Valley. I write, teach, and speak in the hopes of expanding understanding of how bankruptcy can make life better in a family's future.

Bankruptcy Basics

About The Soapbox

You’ve arrived at the Bankruptcy Soapbox, a resource of bankruptcy information and consumer law.

Soapbox is a companion site to Bankruptcy in Brief, where I try to be largely explanatory and even handed (Note I said “try”).

Here, I allow myself to tell stories and express strong opinions. We dig deeper into how to consider bankruptcy and navigate a bankruptcy case.

Moran Law Group
Bankruptcy specialists for individuals and small businesses in the San Francisco Bay Area

How Bankruptcy Works

What Happens To Your Bank Account in Chapter 13

Those considering filing a Chapter 13 bankruptcy worry about "what happens to my bank account?" Will the trustee take all the money? How do I pay my living expenses after I file? The short answer is: nothing changes. The account remains yours and available for all the expenses of day to day living. Because, … Read more

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