ABI Journal recently published an article penned by Buchanan Bankruptcy and insolvency Counsel Mark Pfeiffer on what happens to an individual debtor’s bank account when they file for chapter 7. In his article, titled "To Freeze, or Not to Freeze, That is the Question," Pfeiffer explores the tactic of preserving property for the estate and preventing improper use by the debtor by freezing their account when the debtor files for chapter 7, and analyzes whether the approach is authorized by the Bankruptcy Code.
"What happens to an individual debtor’s bank account when the debtor files for chapter 7? Can the debtor continue to use the funds in the account, or should the bank freeze it?" he asks.
Pfeiffer writes that some banks freeze the chapter 7 debtor’s accounts when the bank learns of a bankruptcy, and delves into whether or not this approach is authorized by the Bankruptcy code.
"There are legitimate policy issues on all sides of this controversy, not addressed by the Bankruptcy Code or Rules. A statutory solution could balance and preserve the interests of all parties by providing a modest automatic preliminary exemption to debtors and a safe harbor to banks for honoring debtor demands up to the amount of the automatic preliminary exemption," he writes.
Read the full article – "To Freeze, of Not to Freeze, That Is the Question" (ABI Journal – subscription required).