Do Credit Unions Close Bank Accounts when a Debtor Files Chapter 7 Bankruptcy

Bankruptcy is a legal process that allows individuals or businesses who cannot pay their debts to seek relief from some or all of their debts. In the United States, it is governed by federal law, with certain aspects left to state law. One common form of bankruptcy is Chapter 7, also known as liquidation bankruptcy. But what happens to a debtor’s bank account when they file for Chapter 7 bankruptcy? More specifically, do credit unions close these accounts?

The answer is largely dependent on the policies of the specific credit union and the nature of the debtor’s relationship with the credit union. Generally, credit unions, like other financial institutions, have the discretion to close an account if they believe it is in their best interest to do so.

When a debtor files for Chapter 7 bankruptcy, an automatic stay is put into effect. This stay prevents creditors from taking collection actions against the debtor. However, it does not necessarily prevent a credit union from closing the debtor’s bank account.

Some credit unions might choose to close an account because of the bankruptcy filing, especially if the debtor owes money to the credit union. In this case, the credit union might have a policy of closing the account to protect its interests.

Additionally, if a debtor has a loan with the credit union, the credit union may be able to set off the debtor’s bank account against the loan. This means the credit union could take money from the debtor’s account to pay off the loan. This is usually permissible even if the debtor has filed for bankruptcy.

However, not all credit unions will close a debtor’s account after a bankruptcy filing. Some might continue to allow the debtor to maintain the account, particularly if the debtor’s financial situation is likely to improve after the bankruptcy.

It’s important for debtors to communicate with their credit union about their bankruptcy filing. They should also consult with a knowledgeable bankruptcy attorney to understand the potential implications of their bankruptcy on their bank account.

At Liviakis Law Firm, we can provide guidance on this and other bankruptcy-related issues. Contact us today at 916 459 2364 to speak to a chapter 7 bankruptcy attorney about whether your bank account might close upon filing bankruptcy.