Wells Fargo Won’t Stop Freezing Bank Accounts

Categories: Automatic Stay, Bankruptcy Law Overview, Chapter 7, Exemptions

Many a Creditor has driven us bankruptcy lawyers and our clients nuts with their antics, but freezing a client’s bank account after their case has been filed takes the cake.  The Ninth Circuit BAP just released In re Mwangi Case No. 09-1408 (9th Cir.B.A.P., June 30, 2010), which held that Wells Fargo’s national policy of placing administrative holds on accounts of persons filing a bankruptcy petition violates the automatic stay by exercising control over property of the estate.  The issue in Mwangi was their national procedure of running a computerized comparison of all newly filed Chapter 7 bankruptcy cases against Wells Fargo’s list of account holders.  If they found a match of one of their account holders who had also filed bankruptcy, then Wells Fargo would immediately ‘freeze‘ that account, preventing the debtor from having access to their money. 

It’s no secret that Wells Fargo has been notorious for freezing the accounts of debtors filing bankruptcy under Chatper 7.  We also have it on good word that Wells Fargo will continue to hold funds while they appeal the Mwangi case. 

Keep in mind that your bank account is property of the estate upon filing your bankruptcy case that presumably includes the cash in your bank accounts.  So, don’t go on a spending spree just yet.  Any Exempt funds are not exempt until 60 days after the conclusion of your meeting of creditors.  Technically, all of your assets, including cash on hand must be turned over the trustee to administer your estate, but that is just not practical.  This means that the law is not on your side here and while Wells Fargo can put a freeze on your accounts, they also must act prudently by asking for guidance and direction from the Trustee and/or Court as to what to do with your funds.

This reminds me of the term “vicious compliance.”  This term seems to crop up in certain union worker circles when they don’t like a particular ruling or law, they will strictly comply with it and demonstrate that it doesn’t work and then use it against management by knowing it better.  So, if Wells Fargo wanted to ‘viciously’ comply with the law, they would stop freezing accounts and simply send all the money to the trustee.  No matter how you slice this ruling, Wells Fargo is still a big bully.

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