Ninth Circuit Appellate Panel Overturns the BAP; Approves Wells Fargo Freeze Policy

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

We have been following the Mwangi case since 2010 when we first heard of Wells Fargo placing a “temporary administrative pledge,” known as a “freeze” on a debtor’s bank account after it discovered that they had filed bankruptcy. You can read the first article here and the follow up article here.


After filing for bankruptcy, the debtor’s bank accounts held at Wells Fargo Bank, N.A. froze the accounts.  Each night, Wells Fargo combs their system for all newly filed Chapter 7 bankruptcy cases that match up with their account holders and places a, “temporary administrative pledge,” on the accounts. Wells Fargo believed, and I agree, that the money held in the bank accounts became property of the bankrupt estate upon filing of the case.

The Issue

Whether Wells Fargo violated the Automatic Stay provisions of 11 U.S.C. 362 when it froze the debtor’s bank accounts after they filed for bankruptcy.

Procedural History

Debtors filed a motion in the bankruptcy court seeking sanctions pursuant to 11 U.S.C. § 362(k) against Wells Fargo, based on Wells Fargo’s alleged intentional violation of the automatic stay provisions in §§ 362(a)(3) and (a)(6). The bankruptcy court denied this motion, concluding that Wells Fargo could not have violated the automatic stay because (1) the automatic stay applies only to property of the bankruptcy estate, and exempt property never becomes estate property; and (2) Wells Fargo took no action to collect, assess, or recover any prepetition claim against the Debtors.

The Debtors appealed to the Bankruptcy Appellate Panel (“BAP”), which reversed the bankruptcy court. Mwangi v. Wells Fargo Bank, N.A. (In re Mwangi I), 432 B.R. 812, 816 (9th Cir. BAP 2010). First, the BAP rejected Wells Fargo’s argument that the Supreme Court’s decision in Citizens Bank of Maryland v. Strumpf, 516 U.S. 16 (1995), authorizes Wells Fargo’s policy of “temporary administrative pledges.” According to the BAP, Strumpf authorizes a bank to impose a temporary administrative hold only to preserve setoff rights, and in this case, Wells Fargo denied any intent to protect setoff rights. In re Mwangi I, 432 B.R. at 820. Second, the
BAP found that the Debtors had an inchoate interest in the account funds, which remained part of the bankruptcy estate. Id. at 820–21. Third, the BAP held that 11 U.S.C. § 522’s right to claim exemptions in estate property bestows standing on debtors to pursue sanctions for violations of § 362’s automatic stay provisions. Id. at 822–23. Fourth, the BAP held that Wells Fargo had violated 11 U.S.C. § 362(a)(3) by exercising control over estate property. Id. at 823–24. The BAP reasoned that the turnover provisions of the Bankruptcy Code are self-effectuating and that the Debtors were not required to take any action to ripen their interest in the account funds before asserting a violation of § 362’s automatic stay provisions. Id. at 824. Finally, the BAP remanded the case to the bankruptcy court to determine whether Wells Fargo’s retention of the account funds was reasonable and, if not, whether the Debtors had suffered damages. Id. at 825.

This case moved from the Bankruptcy Court, Bankruptcy Appellate Panel, then to the District Court, only to jump to its death in the Ninth Circuit on appeal.


The panel held that the debtors could not state a claim for willful violation of the automatic stay provision of 11 U.S.C. § 362(a)(3), which proscribes “any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate.” You can read the entire court opinion here.

Moral of the Story

  • Don’t bank where you owe money!
  • If you bank at Wells Fargo, move your money BEFORE you file for bankruptcy!
  • Always consult with several attorneys BEFORE you hire them because not all attorneys know. 
  • Other banks may start freezing bank accounts.
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