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Freezes of Wells Fargo Bank Accounts for Bankruptcy Debtors

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The Middle District of Florida, Tampa Division, upheld Wells Fargo’s practice of freezing bank accounts of Chapter 7 bankruptcy debtors. In re Young, 439 B.R. 211 (Bankr. M.D. Fla. 2010). In ruling that the administrative freeze was not a violation of the stay, the Court denied sanctions against Wells Fargo.

We are advising our bankruptcy clients to move their bank accounts (checking, savings, CDs etc.) to other banks when filing a Chapter 7 bankruptcy. To our knowledge, Wells Fargo (and Wachovia which was merged into Wells Fargo) is the only bank that has taken this position. This avoids panicked calls from our clients when their bank account is frozen and they learn that it may take 30 days for the trustee to abandon any non-exempt interest in the account.

For the time being, this ruling is only applicable to Chapter 7 cases. The Court in Young unequivocally stated that its holding should only apply to Chapter 7 cases and that it would view an administrative freeze on accounts in a Chapter 11 or 13 as a violation of the automatic stay. The Wells Fargo administrative policy may be limited to accounts of $5,000 or greater, but I wouldn’t trust that they won’t freeze an account with less. The reasoning behind them holding the money for the bankruptcy trustee to decide what to do with it applies when a bank account has less than $1,000 in it due to the low personal property exemptions in the State of Florida.

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