Individual debtors often file for chapter 7 bankruptcy. Once a debtor files the bankruptcy petition, a bankruptcy trustee is assigned to the case and one of his duties is to collect a portion of the debtor's assets, including bank accounts, and use them to pay his debts. Prior to seizing money from a bank account, the trustee first freezes the account to preserve the funds; however, sometimes banks will do this on their own.
Why Accounts Get Frozen
Debtors who file for chapter 7 bankruptcy give up their nonexempt assets to the bankruptcy trustee who then liquidates them to pay as many of the debtor's creditors as possible. In contrast, exempt assets are those protected from liquidation either by a federal or state exemption; in other words, the debtor gets to keep them. If the debtor has money in his bank account when he files for bankruptcy, the trustee will freeze the account and seize this money only if the funds are not protected by an exemption, or if the trustee suspects fraud. At other times, the bank may freeze the account. This is because some banks automatically freeze customer accounts upon notice of a bankruptcy filing. If the debtor owes the bank any money, these funds are used to satisfy the debt.