Chapter 7 Bankruptcy Petitioners Bank Accounts Frozen at Wells Fargo

“Can the bankruptcy trustee take the money in my bank account when I file Chapter 7 or Chapter 13?” is perhaps one of the most frequently asked questions that I hear people ask when they come into my Atlanta office for a bankruptcy consultation. While the bankruptcy trustee may take funds in your bank account after you have filed bankruptcy, such an occurrence rarely happens because Georgia allows debtors to use exemptions to protect some of their assets in bankruptcy. Nonetheless, having your money taken or made inaccessible to you in bankruptcy is not completely out of the question.

Imagine the following scenario. You decide to declare bankruptcy−maybe you have been laid off or you are afraid that your wages will be garnished, maybe you are ill and have accumulated medical debt, or maybe you are just sick and tired of being harassed by creditors. Your attorney begins proceedings, perhaps right here in Atlanta, Georgia. The evening after your attorney files the bankruptcy petition, you go to bed with a feeling of relief, the first you have experienced in months or maybe even years, knowing that you have taken the first step to getting your financial life back under control. The next day you wake up and go to your Wells Fargo account to check your balance or pay a bill. Wait a second though, you can’t access your account. YOUR ACCOUNT HAS BEEN FROZEN!

This is every debtor’s worst nightmare, and it actually happened to a couple who filed Chapter 7 bankruptcy in Nevada. In the recent case Mwangi v. Wells Fargo, two bankruptcy petitioners found that their accounts had been frozen by Wells Fargo. Each night, as standard practice, Wells Fargo uses computers to compare its clients with lists of recent Chapter 7 bankruptcy petitioners. In Mwangi, when Wells Fargo found a match, it froze the debtors’ account and sent a letter to the Chapter 7 bankruptcy trustee asking for instructions on how to disperse the funds. Wells Fargo’s rationale was that the funds belonged to the bankruptcy estate once the debtors filed bankruptcy, and that it could not disperse the funds without the Chapter 7 trustee’s approval. Interestingly, Wells Fargo was scheduled as an unsecured creditor with a debt owed of about $50,000 and a debt of $2000 owed on an equity line of credit. The debtors claimed that 75% of the funds held in their four Wells Fargo accounts were exempt from taking by the trustee and demanded that the funds be released. Wells Fargo refused. Even more shocking is the fact that the bankruptcy court agreed with Wells Fargo, and found that Wells Fargo was not willfully violating the automatic bankruptcy stay!

This decision was recently overturned on appeal by the United States Bankruptcy Appellate Panel for the Ninth Circuit because it determined that the bankruptcy court erred when it initially found that Wells Fargo’s administrative freeze did not constitute the exercise of control over the property of the estate. That said, there are indications that Wells Fargo may be using similar tactics in other jurisdictions, including in Georgia. Wells Fargo customers, including former Wachovia customers, who are considering filing for bankruptcy should consider themselves forewarned and consider transferring their assets to another bank. If you are considering filing for bankruptcy please seek the advice of a qualified bankruptcy attorney. For a free consultation please contact the Law Offices of Charles Clapp at (404) 585-0040 or email info@lawcmc.com for more information.