Can creditors levy your bank account if you file for bankruptcy?

Shouldn’t the filing of a BK cause an automatic stay on any funds in your account?

Yes, the automatic stay will prohibit a levy by a judgment creditor.

However, certain banks and financial institutions such as credit unions have “set off” rights under state law, which means that they CAN put an “administrative hold” on any bank account that you hold WITH THEM if you owe them money. There is actually case law holding that such “hold” is NOT a violation of the stay. That means they can do the freeze with or without a BK being filed.

Secondly, more and more banks these days are now putting a freeze on debtors’ bank accounts FOR THE BENEFIT OF THE BANKRUPTCY ESTATE (I can’t recall the BK Section off the top of my head but it is in the Code) once they are notified that a BK has been filed by the account holder. Usually, they will do it if the account contains a certain amount like $2500 or more- amount varies with bank. Bank of America and Wells Fargo, from my experience, are notorious for this practice. They will only release the funds once the BK Trustee abandons the money in the account as a BK estate asset (i.e., Trustee chooses not to liquidate.)

My advice to my clients, to be on the safe side at all times, is to AVOID banking with a financial institution that they owe money to.

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