Before bankruptcy: three reasons to change banks

When people talk to me about filing bankruptcy, I often tell them to change banks.

Here are three reasons.

1.   If you have money in a bank you owe money to: change banks.  A bank is allowed to pay themselves for money you owe them.  If you have money in Bank of America and you have a mortgage, or equity loan or signature line with them, they can grab your money to pay themselves.

Credit Unions are especially quick.  And credit unions can also offset credit cards, too.  (Banks are not allowed to do that.)  As a precaution, get your money out of any bank you owe money to.

"Before you file bankruptcy, here are three reasons to change banks."

2.  If you have money in Wells Fargo: change banks.  Even if you don’t owe them any money, Wells Fargo will freeze your bank account when they hear about the bankruptcy.  They think bankruptcy law requires them to do this–even though no other bank thinks that way.  (Henry Sommer, former president of the National Association of Consumer Bankruptcy Attorneys, jokes that maybe they just do it to collect bounced check fees.)

Whatever the reason, close your account at  Wells Fargo.

3.  If you are in danger of garnishment: change banks.

Do you have a warrant-in-debt or other court paper?  Once a creditor has a judgment against you, they can garnish your bank account.

How do they know where you bank?  They will look at the last check you wrote them–maybe a year or more ago–and they will hit that bank.  So, make sure when they do that, you don’t have any account there any more.  (Just getting a different account number at the same bank doesn’t work. )

Where should you go?  I like to tell people the universe is full of banks.  As long as you don’t owe them any money, and it’s not Wells Fargo, and you haven’t banked there before, any bank will do.

(Some people are afraid as soon as they open a new bank account, everyone will know.  That’s not true.  This is still America.  Your private business is still, mostly, private.)

Some people’s credit is so bad they have trouble opening a new account.  If you are worried about that, try TD Bank.  They will open an account for people who can’t get one anywhere else.  (People also tell me they really like TD.)

Here’s one thing you should not do.

Don’t put your money in someone else’s bank account.  That is not allowed.  If you put your money in someone else’s name, you can lose your bankruptcy discharge.  When your bankruptcy is over, the court would tell everybody you owe money to, that it’s open season on you again.   Don’t do that.

While we’re talking about bank accounts, close your orphan accounts.  You know, those accounts that still have $5.00 in them from when you used to bank there, where you used to live.  Close them.

When we go to the bankruptcy court together, you have to turn in account statements for all your accounts.  You don’t want to be fumbling around with six accounts when you only really need one.  You also don’t want to get sent home from court to look for that last account statement on the account you never use.  Close them!  You’ll save yourself (and me and the bankruptcy court) a lot of headaches if you take my advice on that.