How Are Joint Checking Accounts Treated in Bankruptcy?

How a joint checking account will be treated in bankruptcy depends on the property laws of your state and whether you are filing for Chapter 7 or Chapter 13 bankruptcy. Read on to learn what to expect with joint checking accounts in Chapters 7 and 13 and how to protect your bank accounts in bankruptcy.

Learn more about property and exemptions in bankruptcy.

Joint Checking Accounts in Chapter 7 Bankruptcy

In Chapter 7 bankruptcy, whether the Chapter 7 bankruptcy trustee will seize the money in a joint checking account depends on two things: You must prove that your state's exemption laws cover the balance and who owns the funds in the account.

The trustee has the authority to seize your "nonexempt assets" for the benefit of your creditors. Nonexempt assets consist of property you can't protect with a bankruptcy exemption.

If you are filing an individual bankruptcy but have a joint checking account with another person, you must list it in your bankruptcy schedules as an asset, even if the money belongs to the other account holder. If the entire account balance is exempt, you don’t have to worry about the trustee going after any of the funds in the account.

However, if you can only exempt a portion of the funds in the account, you will usually need to provide documentation to prove precisely how much of that money belongs to you. If you confirm that the money is not yours, it will not be part of the bankruptcy estate.

Most states have laws regarding ownership rights in joint accounts. In many states, ownership is determined based on who contributed the money. But other states presume that the money is owned equally unless you can prove otherwise.

Learn more about bank accounts in Chapter 7 bankruptcy.

Joint Checking Accounts in Chapter 13 Bankruptcy

You are allowed to keep all of your nonexempt assets in Chapter 13 bankruptcy. However, you must pay creditors an amount equal to the value of nonexempt property in your repayment plan. If you can't prove that the nonexempt funds in the joint account don’t belong to you, you'll likely need to pay more to creditors through your Chapter 13 plan.

Community Property Exception

If you live in a community property state, almost all property acquired by either spouse during the marriage is considered equally owned by both spouses, regardless of who is on title. If you have a joint checking account with your spouse, the trustee can typically go after all the nonexempt funds in the account, even if your spouse contributed all the money.

Reviewing State Laws Before Filing for Bankruptcy

Keep in mind that in some instances, a nonfiling spouse's separate property can be used to pay the other spouse's debts. You'll want to carefully review your state's laws with a bankruptcy lawyer before filing to ensure the safety of your property and explore other bankruptcy property issues, like whether your cash is safe in bankruptcy.