Wells Fargo not allowed to freeze bank accounts when a Chapter 7 case is filed

An interesting case emanating from the western states involves a court clamping down on Wells Fargo for illegally violating the bankruptcy court’s automatic stay protections in many consumer Chapter 7 cases.

A recent ruling from a bankruptcy appellate panel in the Ninth Circuit, which covers most of the West, found that Wells Fargo was obtaining lists of every debtor in the country who filed a Chapter 7, and comparing the names with their account holders. Whenever there was a match, Wells Fargo would put a “freeze” on the account, not letting the debtors have access to their funds. Then they would send a form letter to the bankruptcy trustee, asking what should be done with the money. If the trustee didn’t write back, they just kept the funds indefinitely.

The appellate judges held that Wells Fargo’s national policy of freezing accounts violates the automatic stay; they notes that the debtors in the case in question had actually requested that Wells Fargo return the money to them, and had declared part of the account exempt on their bankruptcy schedules.

The court stated that, since no instructions were forthcoming, Wells Fargo was under an obligation to do something–either release the funds to the trustee; release the funds to the debtors after demand was made by the debtors or seek direction from the bankruptcy court. Wells Fargo did none of those things.

There aren’t too many Wells Fargo bank branches in New England yet, so this decision may not directly affect many people filing Chapter 7 cases in New Hampshire or Massachusetts. But keep an eye out for what your bank does when you file a case. If you come across a bank that “freezes” accounts automatically like Wells Fargo did, let me know about it!

 

By Doug Beaton

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