If you’re thinking about filing for bankruptcy, you’re probably wondering what’ll happen to the money sitting in your checking and savings accounts. It’s one of the first questions most people ask, and honestly, it’s a smart thing to worry about. The answer isn’t simple. It depends on how much money you have, what types of accounts hold those funds, and how Michigan’s bankruptcy exemptions apply to your particular situation.
How the Bankruptcy Trustee Views Bank Accounts
Here’s what happens. When you file Chapter 7 bankruptcy, a trustee gets appointed to look through your finances. This person examines everything you own, including whatever’s in your bank accounts, to figure out what can be sold off to pay your creditors. The moment you file, your bank account becomes part of what’s called the bankruptcy estate. The trustee cares about the balance on your filing date. Not last month. Not six months ago. Just that specific day. Timing matters more than you might think.
Michigan Bankruptcy Exemptions for Cash
Michigan lets you choose between state exemptions and federal exemptions when you file. Under the state exemptions, you can protect some of the cash in your accounts using either the personal property exemption or the wildcard exemption. Michigan’s wildcard exemption is pretty limited compared to what you’ll find in other states. So if you’ve got a decent amount saved up, there’s a real chance you could lose some of it to the trustee. Federal exemptions work differently and might offer better protection depending on your circumstances. A Warren Chapter 7 bankruptcy lawyer can walk you through both options and help you figure out which set makes more sense for you.
Different Types of Accounts Receive Different Treatment
Not all bank accounts get handled the same way in bankruptcy. The type of account you have makes a real difference:
- Joint accounts with a spouse who isn’t filing create complications since only your share of the money is part of the estate
- Payroll accounts where wages were just deposited might get extra protection
- Trust accounts or money you’re holding for someone else usually don’t count as your property
- Retirement accounts like 401(k)s and IRAs have strong federal protections built in
The Timing of Your Filing Matters
Your filing date determines which bank account balance the trustee looks at. Some people deposit large amounts right before filing, thinking they can protect it somehow. Don’t do that. It raises red flags immediately. Recent deposits matter too. Tax refunds, work bonuses, insurance payouts. The trustee’s going to ask about anything unusual that showed up in your accounts during the months before you filed. These deposits might not be fully exempt, even if the money’s sitting there on filing day.
What Happens to Direct Deposits After Filing
Your employer can keep sending direct deposits to your account after you file. That’s your post-filing income, and it generally belongs to you, not the bankruptcy estate, but here’s something that catches people off guard. Some banks freeze accounts when they get notice of a bankruptcy filing. This doesn’t happen everywhere, and honestly, most banks aren’t legally required to do it. Still, it happens enough that you should be prepared for potential short-term cash flow problems.
Protecting Your Funds Before Filing
Working with Gudeman & Associates, P.C. before you file gives you time to plan this out properly. You can adjust your account balances, understand exactly what the exemption limits are, and avoid doing anything that might look suspicious to the trustee. You can’t just withdraw huge amounts of cash right before filing. Moving money between accounts without a legitimate reason? Also, a bad idea. The trustee will view these actions as attempts to hide assets from your creditors, and that creates serious problems for your case. Trust me on this one.
Steps to Take if You’re Considering Bankruptcy
Meet with an attorney well before you’re ready to file. This gives you breathing room to understand how your specific bank accounts will be treated and what steps you should take to protect as much money as the law allows. Be completely honest about every account you have. Yes, even that old savings account you haven’t touched in years. Failing to disclose an account, even if you genuinely forgot about it, can get your case dismissed. Or worse.
Getting Help With Your Case
Chapter 7 bankruptcy can give you a genuine fresh start, but protecting your bank accounts takes careful planning. The exemptions you’re entitled to use depend on dozens of factors that change from one person’s case to another. If you’re seriously considering bankruptcy in Michigan, talking with a Warren Chapter 7 bankruptcy lawyer helps you understand exactly what’ll happen to your money. You need someone who knows which exemptions to use and can guide you through the steps you should take before filing to protect as much of your property as possible.
