Bank Accounts and Bankruptcy in Phoenix

What Happens to Your Bank Account When You File

When you file bankruptcy, the money in your bank account on the filing date becomes property of the bankruptcy estate. However, most or all of it may be protected by exemptions:

Exempt funds: Social Security, disability benefits, veterans' benefits, and other government payments are generally fully exempt from the bankruptcy estate.
Wages: Arizona exempts certain funds including wages needed for support, Social Security, and other protected deposits.
Timing matters: Try to file when your account balance is at its lowest point in the month (typically right after paying bills) to minimize the amount subject to the trustee's review.
The trustee reviews your statements: You must provide bank statements for the 60 days before filing.

Bank Account Freezes and Levies

Before Bankruptcy

Creditors with judgments can levy (seize) your bank account
Payday lenders with ACH authorization can drain your account
The IRS can levy without a court judgment
Garnishment orders can intercept deposits

After Filing Bankruptcy

The automatic stay stops all levies and freezes
Existing levies must be released
No new garnishment orders can be issued
Payday lender ACH debits must stop

Practical Steps for Phoenix Filers

Open a new account if needed: If a creditor has your account information and is making unauthorized withdrawals, open a new account at a different bank.
Do NOT owe money to your bank: If you have a credit card or loan with the same bank where you have your checking account, the bank may exercise its right of setoff. Open an account at a different bank before filing.
Keep your balance low on filing day: Pay your normal bills before filing. The less cash in the account, the less the trustee can examine.
Document exempt funds: If your account contains Social Security, pension, or other exempt deposits, keep records showing the source of the funds.
Direct deposit: Post-filing income (earned after the filing date) is generally not part of the bankruptcy estate in Chapter 7.

Frequently Asked Questions

Will the trustee take money from my bank account?

Only if the balance exceeds what is protected by exemptions. Social Security, disability, veterans' benefits, and other exempt funds are protected. Keep records showing the source of deposits. Timing your filing when the balance is low minimizes exposure.

Can my bank freeze my account when I file bankruptcy?

Banks sometimes place temporary holds on accounts when they receive notice of the filing. This is more common if you owe the bank money (credit card, loan). Opening an account at a bank where you have no debts avoids this problem.

What is the right of setoff?

If you owe money to the same bank where your checking account is, the bank can take funds from your account to pay your debt to them. This is called setoff. Move your accounts to a different bank before filing.

Are my wages protected in my bank account in Arizona?

Arizona allows garnishment of up to 25% of disposable earnings, following the federal standard. Bank accounts can also be garnished with certain exemptions for Social Security and other protected funds. Wages deposited in your bank account may retain their exempt character, but proving which funds are wages versus other income requires documentation.

Can I open a new bank account after filing bankruptcy?

Yes. You can open a new bank account during and after bankruptcy. Some banks may check ChexSystems, but many banks and credit unions will open accounts for bankruptcy filers.

What happens to my bank account in Chapter 13?

In Chapter 13, you keep your bank account and continue using it normally. Your disposable income goes to creditors through the trustee, but you manage your day-to-day banking as usual.