Posted on Sep 23, 2014

I reported here before that I recommend that people filing bankruptcy here in New Jersey move their money out of a Wells Fargo bank account. This is because that bank has a policy of freezing money held in its accounts when someone files a chapter 7. They call it an “administrative pledge."

Why do they do that? To “help out” the bankruptcy courts and trustees by “preserving” this asset in case of liquidation. In other words, the trustee might want that money to pay your creditors. The problem is, you need that money to pay your bills and, in most cases, the entire balance of the account is protected by an exemption that allows you to keep the money and shield it from the trustee.

So What Did the Court Say?

Well, the 9th Federal Appeals Circuit disagrees. When a debtor brought a lawsuit against Wells Fargo for violating the automatic stay, it dismissed it, putting the debtors in a classic Catch-22 situation.

As they reasoned, once the bankruptcy was filed, the funds in the bank account became assets in the bankruptcy, rather than the debtor’s asset, so he had “no right to possess or control them.” Because of this, the court stated, the pledge "could cause the Debtors no injury before the account funds” were returned by the trustee (revisited) due to the exemption. Then after they were revested, the automatic stay did not apply.

So, No Harm, No Foul? Really?

Yes, you read that right, the freezing of the debtor’s money in his bank account caused him no injury. Nevermind that he couldn’t pay his rent/mortgage, cable bill, or car payment. Forget that he most likely incurred bank charges for bounced checks. There was definitely harm!

Although this ruling is only binding on those who file bankruptcy in Nevada, California, Arizona, Alaska, Montana, Washington, Idaho, Oregon, and Hawaii, this could be adopted in the Third Circuit where we are, so my advice still stands. If you have money with Wells Fargo and are thinking about filing bankruptcy, it is best to move your money!

What Do I Do?

If you live in southern New Jersey and are considering filing bankruptcy, please feel free to call me at 856-432-4113 or contact me through this site for a free consultation in my Woodbury office to discuss your case.

If you are looking for more information about bankruptcy, then download my free book,Top Questions People Ask About Filing Bankruptcy in New Jersey.

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Steven J. Richardson
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Bankruptcy, Collections, Student Loan, DUI and Traffic Court attorney in Woodbury, NJ.