Palm Beach Bankruptcy Law Blog

Wells Fargo Now Denies Bankruptcy Debtors Access to their Bank Accounts

Wells Fargo Bank is now freezing bankruptcy debtors' accounts on filing of Chapter 7 bankruptcy petitions. Recently, Wells Fargo denied a debtor access to her accounts, including an account shared with an invalid relative, even though Wells Fargo was not a creditor. In a letter to the debtor's counsel, Wells Fargo stated "Wells Fargo is required by operation of Sections 541 and 542 of the Bankruptcy Code to act in good faith to preserve the Estate Funds and must follow the trustee's direction with regard to Estate Funds." Wells Fargo imposed the freeze within 24 hours of the filing of the petition and the debtor and her invalid relative lost all access to their accounts for more than thirty days.

Wells Fargo's statement of the Bankruptcy Code is correct, but freezing accounts claimed as exempt is discretionary. The Code does not mandate that a depository immediately freeze accounts. This practice causes serious disruption to debtors and their families precisely at the time they expect the relief afforded by the Bankruptcy Code. To minimize this possible harm debtors should consider one of the following:

•1. Before filing a petition move all accounts from Wells Fargo to a bank that will agree in advance not to freeze exempt accounts until ordered to do so by the Bankruptcy Court. Debtors should inquire whether the bank will freeze an exempt account when they open the new account. Any bank account closed prior to the petition must be listed on the Statement of Financial Affairs filed with the petition;

•2. Withdraw all funds in any exempt account with Wells Fargo one day before filing the petition. Debtors should make sure, however, that to include the withdrawal amount on Schedule B as an asset and to claim the withdrawal amount as an exemption on Schedule C. If the funds are re-deposited after the day of filing, Wells Fargo should not then freeze the account because of its inability to determine if the funds were "Estate Funds." Exemption laws are specific to each state, so debtors should seek specific legal advice before withdrawing funds prior to filing; or,

•3. If the Wells Fargo account is held jointly with a non-debtor, change the account to exclude the debtor prior to filing the petition.

Of course, any bank can freeze the accounts of a depositor who owes money to that bank. As a rule, debtors (and any one else) should never keep a depository account with a financial institution that has any claim whatsoever against the debtor or the depositor.

This law office now advises clients to terminate all deposit arrangements with Wells Fargo prior to a bankruptcy filing. The bank's policy is legally justified but not necessary. Good treatment of customers seems less important to Wells Fargo than minor inconvenience to its officers and shareholders.

Many Florida readers have probably experienced at some point in their lives an unfortunate and unexpected event that took a large toll on their finances. Whether it is costly medical bills or an investment gone wrong, even financially strong households can be pushed over the edge when tragedy strikes. Recently, former NFL star Warren Sapp found himself filing for Chapter 7 bankruptcy after a construction deal went bad.

Sapp, who once played for the Tampa Bay Buccaneers, filed for Chapter 7 reportedly after an investment in a low-income housing project went south. The project started in 2005, but building was not supposed to commence until a buyer had received mortgage approval. Nevertheless, Sapp claims that one of his partners went ahead anyways and had three houses constructed.

In late February, we mentioned on this blog a news story about how the U.S. Bankruptcy Court for the Middle District of Florida saw fewer filings in 2011 versus 2010. Unfortunately, the economic data for South Florida has not been so promising. Although the number of personal bankruptcy filings, including Chapter 7 and Chapter 13, across South Florida decreased from January to February, it jumped markedly in March.

The data varies from county to county. For example, Broward County has seen the number of bankruptcy filings increase for four months in a row. In March, that number rose to 866 versus 780 in February. By comparison, bankruptcy filings in Palm Beach County initially fell to 338 in February but rose to 393 in March.

As many Florida families know, the cost of college has been sharply increasing as of late. That has led to parents and students taking on more debt, potentially subjecting them to an onerous burden that may be difficult to relieve without making substantial sacrifices in other areas of their life. However, in some circumstances, families may find themselves having trouble meeting all of their financial obligations. In that case, it may be possible to file for a Chapter 13 bankruptcy.

When the children go to college, Mom and Dad may decide to pick up part of the expense. Many times, they may co-sign a loan with the child, meaning that they are on the hook to repay the loan in case the child fails to pay. On average, parents picked up about 37 percent of all college expenses in 2011.