If you have a joint bank account you should know that if a creditor obtains a judgment against one account holder, they could (and usually do) try and file a “bank levy” to have a Sheriff seize the money in the joint account. If your name is on a joint account with someone else, this can result in your money being “frozen” without notice.

Fortunately, under New Jersey law, ownership of the money in a joint account belongs to the person who put the money in there, unless there is clear and convincing evidence of an intent to make a gift of the money deposited. The bad news is that you will have to go to court to get the bank levy released (an expensive proposition) and the frozen funds may not be released for weeks until the court rules.

What happens to joint accounts in bankruptcy? If a person files bankruptcy, his or her ownership interest in the account becomes “property of the bankruptcy estate”  and the Chapter 7 or Chapter 13 trustee will see it at as a potential asset. It will then become necessary to convince the trustee that the money does not belong to the debtor in bankruptcy. With proper documentation, most (but not all) trustees will agree.   Still, there is uncertainty and the possibility of having to go to court, before the money is free for use.  And again, you are waiting until the bankruptcy trustee or court makes the decision.

Typically, it is better in these situations for the non-debtor joint account holder to set up a separate individual account and keep funds separate. Again, this requires good documentation. BUT merely separating and transferring the debtor’s money into another account will create other problems and you should not do this until you speak as part of your pre-bankruptcy planning process until you speak to an attorney.  

The same concerns about bankruptcy are usually not applied to a “Minor’s Account” where the parent is named on the account merely as a custodian for a minor child, AND where the account contains the child’s own money from normal gifts or the child’s own earnings. BUT again, transferring your money into a child’s account to hide it is unwise and will create “fraudulent transfer” claims in a bankruptcy case.

If you have questions about your bank accounts and think you may be in a situation where your money has been frozen or a bankruptcy is imminent, our office can help.  Feel free to call us right away.  

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