Wells Fargo has a policy of freezing debtor bank accounts that have a balance of more than $5,000. Don’t look for the source of this policy in the bankruptcy code, rules, or jurisprudence. Don’t look for it in the “best practices” manual for big banks. It’s not in any of those places. Wells Fargo just made it up because it think it’s a good idea. Most of our clients don’t have over $5,000 in their bank accounts, but for those who do (and who fail to follow our advice and move those funds out of their Wells Fargo account prior to filing), having their account frozen is a big deal. Checks bounce, money can’t be accessed. It’s a pain.
What, exactly, to do about this policy has alluded bankruptcy practitioners. Freezing a bank account feels like a violation of the Automatic Stay, but because Wells Faro isn’t a creditor, and because its motives are ostensibly pure (they don’t want to get in trouble with a trustee if a debtor depletes non-exempt funds), courts have been reluctant to sanction the policy. The Ninth Circuit is the highest court to consider the issue, and they ruled in favor of Wells Fargo.
A recent case out of the Southern District of New York, however, disagrees with the Ninth Circuit’s ruling. For Judge Morris, Wells Fargo’s act of exercising control over estate assets, irrespective of its motives, was the determining factor in ruling that the Automatic Stay had been violated.
Maybe, now, Wells Fargo will change its policy.