bankruptcy

How to get your money in bankruptcy

Justin HarelikQuestionDear Bankruptcy Adviser,
My bank accounts have been levied. Everything, including my checking, savings and CD accounts are frozen. My lawyer filed bankruptcy for me, and I was advised by my lawyer that once the bankruptcy is filed, the banks were supposed to unfreeze my accounts and release my money back to me. That was three days ago. When I contacted my bank to find out what was going on, I was informed that since the bankruptcy filing the funds are now in the hands of the trustee. I'm waiting to see if he has any interest in the accounts. What happens now, and how long should I wait before I can return to the status quo?
-- Ray

AnswerDear Ray,
The difficult part of your question is that each and every state has different levels of asset protection. This means that depending on the state in which you live, you are able to protect -- or exempt -- a certain portion of your assets in bankruptcy.

I would tend to believe your attorney if he or she says that you can protect those funds. Unfortunately, the bank has its own attorneys; some might refer to them as sharks. Those attorneys know that violating the bankruptcy court rules can be very expensive. When the bank gets a notification of a bankruptcy and is holding funds, it is not going to simply release the money to the first person who asks. Your attorney has little power over the bank; you have even less.

Many times, the release of funds can be handled relatively quickly. "Relatively quickly" would mean a minimum of 30 to 40 days. I know that doesn't sound quick when you need to pay your rent, mortgage or other bills with this money, but the bank doesn't care.

Here are ways that funds can be released:

1. The trustee authorizes the release of the money.

When you file bankruptcy, a trustee is appointed to your case. He reviews your petition to see whether you qualify for bankruptcy and to determine whether all your assets should be protected. The trustee will be the first person to state that he does not have an interest in those bank-held funds. That means you would have been able to protect those funds if your account hadn't been levied.

Once your case has been filed, you or your attorney would notify the bank and the sheriff's department that executed the levy. That would stop any future levies.

The trustee will have to be given the opportunity to review your petition. After that review, he may be willing to sign a letter that is sent to the bank and to the sheriff's department, stating that he doesn't have any interest in the funds. The trustee doesn't have the power to tell the bank or sheriff what to do, only that he has no interest in that money. After receiving this notification, the bank or sheriff can release the funds back to you.

2. Creditor authorizes the release of money.

You may have some luck notifying the creditor directly. The creditor might have a law firm that handled the lawsuit and bank levy. You could contact the lawyers and ask them to send a notification to the bank and sheriff, allowing the money to be released.

Typically, you would want to make this effort in conjunction with a request directly to the bankruptcy trustee assigned to your case. The creditor or law firm might take even longer to respond to any request for a release to the bank.

3. The court orders release of funds.

Some trustees will not adhere to any such request or sign any letter. This means you would have to file a motion with the court for release of the money. After a hearing on the motion, the bank will need a court order to release the funds to you. The bankruptcy judge would have to sign the order to release them.

Any attorney will charge you to file the motion, serve all interested parties and attend the hearing, if necessary.

Unfortunately, there is likely not to be a quick-and-easy resolution to your predicament. Let's hope that the trustee will cooperate. Otherwise, the cost of having the money released could be more than what you are trying to protect.

Bankrate's content, including the guidance of its advice-and-expert columns and this Web site, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this Web site is governed by Bankrate's Terms of Use.

Read more Bankruptcy Adviser columns and more stories about debt management. To ask a question of the Bankruptcy Adviser go to the "Ask the Experts" page, and select "Bankruptcy" as the topic.

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