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Banker's Options When Debtor Files for BankruptcyA bank must pause its efforts to collect a debt or foreclose on a property if the debtor files for bankruptcy. The automatic stay is one of the most powerful tools that a debtor has during bankruptcy. The stay expires after 30 days, but the debtor can file for an extension. As a bank, your priority when a client files for bankruptcy is to protect yourself and try to recuperate the debts owed to you. There are several actions you should consider.

Freezing Account

The automatic stay prevents you from withdrawing money from a bankruptcy filer’s account in order to offset debt. However, you can freeze your client's bank account in order to:

  • Protect the money from a bankruptcy trustee; or
  • Hold onto the money until you are able to offset it.

The trustee may order you to release the portion of the bank account that will be exempt from the bankruptcy. It may take weeks for the trustee to make this determination, which buys you time to pursue legal action.

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Illinois Creditors Bar Association Chicago Bar Association Illinois State Bar Association
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