Does a Bankruptcy Filing Release Bank Funds?
Filing for bankruptcy can release funds in your bank account that are being garnished by credit card companies or debt collectors. A legal order by a judge, called an "automatic stay," immediately ends all garnishment activity once you file for bankruptcy. This powerful protection is one reason many people file for bankruptcy. "The New York Times" reports that as of 2010 bank and wage garnishments have been on the rise as creditors have stepped up efforts to collect debts by filing lawsuits.
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Frozen Bank Accounts
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Credit card companies and debt collectors can force your bank to freeze your checking or savings account after winning a court order for bank garnishment. The garnishment order becomes possible after the debt collector wins a lawsuit against you for failing to pay an unpaid debt. When the bank account is frozen you are allowed to continue putting money into it, but you cannot make withdrawals, according to the website of the Neighborhood Economic Development Advocacy Project, a nonprofit consumer assistance organization in New York City.
Large Negative Balances
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Your account may show a large negative balance once it is frozen by the debt collector. The negative balance includes the total amount due to the creditor. The debt collector or creditor cannot freeze your bank account without winning a judgment in court, which is why you should really pay attention to any legal summons or court notices you receive about unpaid debts. Failing to show up in court for a hearing can lead to a default judgment and garnishment of your bank account.
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No Notice Required
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Neighborhood Economic Development Advocacy Project reports that your bank isn't required to notify you that it is freezing your bank account. Many people don't even realize that their accounts have been garnished until they they are unable to withdraw money from an ATM or make a debit card purchase because of insufficient funds.
Emergency Filing
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It's possible to file an emergency bankruptcy petition in one day. Bills.com reports that bankruptcy courts will allow for a streamlined filing process so that you can gain protection under the terms of the automatic stay. The automatic stay will be put in place immediately, forcing the bank to remove the freeze from your account. Then you or your attorney will have to fill out additional paperwork to complete the bankruptcy filing.
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