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How Chapter 13 Bankruptcy Can Protect Your Bank Account

You may be reluctant to file for bankruptcy because you are concerned that you will lose your assets. For example, you might be concerned about not being able to pay your bills because the money in your bank account will be liquidated. However, if you are in debt and haven't filed bankruptcy, if a creditor has a judgment against you they might then choose to garnish your bank account. A Chapter 13 bankruptcy can be the best way to avoid this.

What Happens When Your Bank Account is Garnished

Once your bank account has been garnished, your funds will not be accessible if the judgement creditor has issued a freeze order on your account. If you were to use a debit card to make a payment, the card would be declined. However, you will still be able to recover some or all of your funds after you have received a notice about the garnishment and account freeze. You have a limited period to challenge the attachment of file an exemption for qualifying property or funds. 

Some of your funds will be considered exempt depending on the state in which you reside. For example, your wages might be exempt up to a certain amount, and funds that you receive through Social Security or unemployment would be completely exempt. 

When your bank account is garnished, this will only affect the assets present at the time of the garnishment. However, your creditors can repeat this approach several times over to satisfy your debts, so you aren't in the clear after the first garnishment is over. 

Chapter 13 Bankruptcy and Collection Activities

When you choose to file for bankruptcy, there will be an automatic stay on collection efforts. This means that your creditors will not be allowed to take actions such as making harassing phone calls, garnishing your wages, or accessing other assets you own including your bank account.

Chapter 13 is not the same as Chapter 7 in that you will not have to give all of your assets to a trustee to redistribute to creditors. Instead, you will be responsible for paying a certain percentage of your income to your creditors.

After a period of time has passed, usually after five years, all of your debts will be discharged and you will be able to live free from debt. However, you qualify as a wage-earner to qualify for Chapter 13 bankruptcy. Otherwise, the courts might convert your case into a Chapter 7 bankruptcy, and you may then be forced to have your assets liquidated. If you're concerned about whether you qualify for a Chapter 13 bankruptcy, discuss your case with a lawyer who is experienced in bankruptcy law.