Skip to content
Contact Us: 03-3724722 | 055-9781688 | [email protected]

Sequestered bank account during bankruptcy proceedings

Joshua Pex
Joshua Pex

Bank account attachment is one possible restriction during an insolvency procedure. A debtor who files for bankruptcy is subject to various restrictions and obligations. In fact, the moment the debtor is ordered into receivership, all collection of the debts are frozen until the bankruptcy process is investigated and completed. One of the main restrictions imposed upon the debtor concerns the management of their bank account. In this article, attorney Nechama Ovadia will present a brief explanation of how a debtor handles their finances and manages their own sequestered bank account.sequestered bank account

Management of the debtor’s bank account

As mentioned above, one of the restrictions imposed upon the debtor regards the management of their bank account. The main aspect of this restriction is that the debtor is placed under supervision by the specially appointed manager or trustee responsible for overseeing the debtor’s income and expenditures. This is done by reviewing the monthly reports submitted by the debtor as part of the bankruptcy investigation. However, once the debtor has gone into receivership, there is an instruction which enables the debtor to manage a bank account, under the following restrictions:

  • The debtor’s bank account balance cannot fall below zero, meaning it cannot be in overdraft.
  • The debtor is forbidden to use credit cards and may only use cash or a direct/debit card tied directly to their account.
  • The debtor is forbidden to use checks except in special cases requiring the court’s approval and subject to certain conditions.
  • The debtor’s bank account must be a limited account in which they can deposit their wages and pay their expenses.
  • The debtor cannot receive loans from the bank and/or any other party.

Given that the bankruptcy procedure is intended to help the debtor recover financially, these restrictions are not meant to “punish” the debtor; rather they are meant to ensure that the debtor does not fall any deeper into debt.

Bank account attachment

Once a debtor has filed for bankruptcy, all legal procedures against them are frozen. Therefore, the debtor’s creditors cannot request that the debtor’s bank account be foreclosed. However, if there are existing foreclosures on the bank account at the time of the receivership order, the process of bankruptcy cannot automatically cancel them, and they will be dealt with following the investigation of the debtor’s financial situation.

In the case of an existing foreclosure on the debtor’s bank account, it is possible to file a request with the court in charge of the debtor’s bankruptcy case asking that the foreclosure be removed, making a case on suitable grounds, such as the fact that the debtor is in the process of filing for bankruptcy. If the court approves the request, the debtor will be allowed to manage their bank account under the restrictions detailed above.

Can the bank refuse to let the debtor open an account?

In most cases, a bank will allow a debtor to open and manage a bank account even while they are in the process of bankruptcy, although in some rare cases the bank can refuse if, for instance, there are grounds for suspecting that the debtor will use the bank account to commit money laundering crimes, or if the debtor has a record of acting violently towards bank employees. From the moment the debtor’s request to open an account is received, the bank must make a decision and inform the debtor of it by mail within the timeframe of 15 days.

Moreover, if one the exceptional conditions listed above applies, the bank can allow the debtor to manage a bank account, but under certain predetermined conditions. The debtor may be asked to provide a certificate of confirmation to the specially appointed manager or the officially appointed receiver.

Seeking an attorney’s assistance regarding the sequestration of a bank account

Navigating a bankruptcy is a complex task which places the debtor under a host of restrictions and obligations. Any action taken by the debtor may have unintended consequences against them. Therefore, to get the best and most professional guidance, we recommend seeking an experienced attorney with expertise in the field of insolvency. Our office will be happy to be of service.

Contact Us

  • ✓ Valid number ✕ Invalid number
  • This field is for validation purposes and should be left unchanged.

Scroll To Top