Taking money back in bankruptcy difficult

Dear Bankruptcy Adviser,
After I file for bankruptcy, when will my bank account funds be released back to me? The funds are garnished by the creditor.
— Reginald

Dear Reginald,
You are facing a potential uphill battle to recover money levied from your bank account or garnished from your paycheck. While you may have the legal authority to demand return of those funds, the implementation of your legal rights may be challenging.

Important note: This answer does not apply to every state.

In many states, you might not be able to recover any of the money levied or garnished. I am giving very general information that might apply to your specific situation. But for the most part, once money has been levied or garnished, I never tell clients that I can get the money back.

Any money taken from you, via garnishment or bank levy, in the 90 days prior to filing your case is an asset of your bankruptcy estate. Your estate consists of all legal or equitable interests that you have at the beginning of a bankruptcy case. Your car, house, even the watch on your wrist, are property of your estate. However, in most states you can exempt, or protect, some or all of your property.

The person assigned to your case when you file, called a trustee, is entitled to bring that money back into your bankruptcy estate. The trustee makes money by finding assets that cannot be protected, selling those assets and collecting a fee. In your case, the trustee might make money by demanding that the funds be returned, disbursing those assets to creditors and collecting a fee.

However, the funds could be exempt from creditor claims, meaning the trustee would have to give you the money back. If that is the case, the trustee has little or no interest to recover those funds because he or she will not be able to charge a fee. Therefore, the trustee will not help recover those funds. That means you’ll have to recover them yourself.

Typically, the money is first taken by the local sheriff’s department assigned to execute on the levy or garnishment. Most sheriff’s departments will hold the money for up to 30 days before sending it to the creditor. If you can properly notify the sheriff of your bankruptcy filing immediately, the sheriff may hold onto the money. However, the sheriff will not simply turn over the money to you. You may need to get a court order, trustee request for turnover or creditor request to send the money back to you.

Here are your options, if you’re lawfully able to seek the funds that have been taken:

  1. If the money is still with the sheriff, call the creditor and ask to have the funds released. This does work sometimes.
  2. If the money has already reached the creditor, ask that the money be returned. Most creditors know when the money must be returned. A creditor does not want to be sued and pay a penalty for failing to turn over the money.
  3. Contact your attorney or the trustee assigned to your case. Your attorney can help with options 1 and 2. However, if you filed on your own, you could be completely on your own in trying to recover the money.
  4. File a motion with the court. This will be difficult if you are unaware of the requisite forms and local bankruptcy court procedure. And the creditor might still make it difficult to recover the money, but you’ll have the court on your side, even though the court will do little to help.

Unfortunately, giving a bright-line answer is impossible. It may be possible to recover the money, but keeping your expectations low is the most important approach to take.

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