How are joint checking accounts treated in bankruptcy?

by: Baran Bulkat, Attorney

In general, 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 more about what happens to joint checking accounts in bankruptcy.

For more information on how bankruptcy affects your property, visit our Property and Exemptions in Bankruptcy topic area.

Joint Checking Accounts in Chapter 7 Bankruptcy

In Chapter 7 bankruptcy, the bankruptcy trustee has the authority to seize your nonexempt assets for the benefit of your creditors. 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 exactly how much of that money belongs to you. If you can prove 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. As a result, whether a bankruptcy trustee will seize a joint checking account depends on the exemption and property laws of your state and whether you can prove who owns the funds in the account.

To learn more, see Bank Accounts in Chapter 7 bankruptcy.

Community Property Exception

If you live in a community property state, almost all property acquired by either spouse during the marriage is considered to be equally owned in its entirety by both spouses (regardless of who is on title). This means that 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 of the money. Keep in mind that this also applies to your spouse's individual bank accounts if the court determines that they are community property and can be used to satisfy your debts.

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 your unsecured creditors an amount equal to their value in your repayment plan. If you cannot prove that the nonexempt funds in the joint account don't belong to you, you may have to pay more to unsecured creditors in your Chapter 13.