Frequently, the proverbial straw that breaks the camel's back is the seizure of needed monies in a checking account. Since no prior notice is given to you in time to move the funds, debtors first learn their checking account has been seized when notice is received from the bank, accompanied by notice that a bank charge has been imposed for complying with the seizure order. What can be done?
A creditor cannot use “self-help” to take money out of your checking account. Bank levies only occur after creditors have obtained judgments for money owed. Unfortunately, most of those judgments are obtained by default, very frequently based upon falsified claims of proper service of the summons and complaint. Over and over, debtors report having never received any of the papers in advance of the seizure of the bank account. But there is a remedy.
Inherent to the bankruptcy process is the notion that starting fresh with a clean slate means starting over with the debtor's basic needs being met. This includes having funds on hand to pay rent, buy groceries, etc. The funds normally kept in checking accounts get there either by direct employer pay deposit or have been deposited by the debtor to be used for living expenses. In California, such funds are protected in an amount up to 75% of one month since net earnings, or alternatively up to $30,825 of funds if the debtor opts to use the “wildcard” exemption, usually the case where the debtor is not a homeowner and the homestead exemption is not needed.
Where funds in a checking account are levied upon by the sheriff at the request of a creditor holding a judgment, California law requires that the bank freeze the funds for 10 days before turning them over to the sheriff for eventual transmittal to the creditor. If a bankruptcy is filed before the 10 days run out, the monies can be recovered.
A debtor who has learned that his or her banking account has been levied by a judgment creditor must move quickly to file the bankruptcy proceeding, often requiring an emergency petition. Once the bankruptcy is filed, the frozen funds must remain in either the hands of the bank or the sheriff, pending further bankruptcy orders.
A debtor can then file a motion asking for the court to determine that the funds frozen are exempt, i.e. either paid earnings or subject to the wildcard exemption. If exempt, under Section 522(f) of the Bankruptcy Code, the court can then “avoid” the lien of the creditor on the funds levied upon. With the judicial lien avoided, the seized funds are then turned back over to the debtor.
Because of motion to avoid such a lien cannot be filed until the bankruptcy has been filed, but the funds will be potentially turned over to the creditor shortly after the 10-day “freeze” has run out, time is of the essence. If this has happened to you, you should immediately consult qualified bankruptcy counsel to take steps necessary to avoid the loss of money that may be critical to meeting the needs of you and your family.