So what happens to joint accounts when one person files for bankruptcy? It varies depending on you specific state’s law, but below are a few considerations.
Some state laws view jointly owned accounts as being owned by both individuals listed on the account. Thus, these states divide the money in the joint account 50/50. Thus, half of the joint account is considered property of the person who filed the bankruptcy case and it becomes part of the estate.
There is typically an opportunity to rebut the presumption of joint ownership. The person who filed for bankruptcy may try to prove that the other account holder (who did not file bankruptcy) deposited all of the funds into the joint account. This argument would likely require the assistance of a lawyer. If successful, the money in the joint account would not be considered an asset of the bankruptcy estate.
If the bankruptcy filer chooses Chapter 13, the court will consider the value of the money in the joint account. In other words, the debtor may be expected to pay the creditors more than he can afford because the court assumes he has access to half the amount in the account. If this is not the case, it can cause problems for the debtor.
One other consideration for joint account holders considering bankruptcy is bankruptcy fraud. This crime can ruin a filer’s chances at receiving a bankruptcy discharge, lead to a very costly fine, and result in jail time.
One example of an action that may be considered bankruptcy fraud is the improper transfer of the money prior to the bankruptcy filing. If a joint account holder removes his name from the account just before filing his case, the court may view it as suspicious. If so, the court may still consider the funds part of the bankruptcy estate.
If you are considering filing a bankruptcy case and you have accounts that are held jointly with an individual who is not going to file bankruptcy, you should discuss this matter with your attorney as soon as possible.
At the law office of Robert L. Firth located in Cathedral City, California, we are committed to providing quality legal representation to individuals and businesses facing difficult legal challenges. We believe in providing compassionate service at reasonable rates. If you need to speak with an attorney about bankruptcy, estate planning and probate, real estate tax deferred exchanges, small business services or another important legal matter, contact the law office of Robert L. Firth at 760-699-2892.