A FEW months after the new bankruptcy law took effect in 2005, Wells Fargo started freezing bankruptcy bank accounts of debtors who filed for bankruptcy. The first time I found out about that practice was when client told me that his checking account in Wells had been frozen and all the checks he issued, including his mortgage payment bounced. This had never happened before. Wells Fargo then sent client a letter saying that the funds in his check account would be frozen because he had filed for bankruptcy and that the trustee had been notified of the money he had in the checking account. The trustee himself was pleasantly surprised that Wells Fargo had volunteered to be his collection agent. The problem was that debtor had claimed the entire amount of $2,000 in his Wells Fargo checking account as exempt under 703.140 (b)(5). Assets claimed exempt are not part of the bankruptcy estate. Because they are exempt assets, they are not within the jurisdiction of the trustee. The trustee has no legal authority to claim these assets unless he successfully objects to the claim of exemption within 30 days of the 341a meeting of creditors.
This is basic bankruptcy law. In other words, by being the trustee’s helper, Wells Fargo is arguably violating bankruptcy law. I wrote to the trustee explaining that the money in Wells Fargo was completely exempt and requested that the funds be released immediately, or that he files an objection to the claim of exemption within 30 days of the 341 A meeting, pursuant to law. Trustee called me and told me he would tell Wells Fargo to release the funds immediately and that he was not privy to what Wells Fargo was doing and that the bank had apparently done that in several cases.
Wells Fargo adopted a practice of having their computers compare that day’s Chapter 7 filings against a list of Wells Fargo account holders. Every time a match is detected, the bank freezes the account regardless of whether the bank has a set-off right against the account or whether debtor has claimed the funds as exempt. The 9th Circuit Bankruptcy Appellate Panel found that this policy turns bankruptcy policy on its head and ruled that it violates the automatic stay (Mwangi vs. Wells Fargo, 6/30/10, 9th Circuit). When debtors filed for Chapter 7 relief, they had four accounts with Wells Fargo with a total balance of $17,075. Their schedules disclosed two accounts with a total of $1,300. They did not claim this money as exempt. Debtor owed $50,000 on credit card debt. Wells Fargo learned of their bankruptcy filing during its nightly sweep of bankruptcy filings. The bank placed a "temporary administrative pledge" on the accounts, which froze them. The bank then sent a letter to the Chapter 7 trustee requesting instructions as to whom the funds should be distributed. The bank also informed the debtors’ lawyer of the accounts advising counsel that trustee had been contacted. That letter said the funds ‘were no longer available to your clients.’ Further, the letter said that the ‘ownership of claimed exempt property remains with the bankruptcy estate until the time for objecting to claimed exemptions elapses or the trustee directs otherwise. Wells Fargo is prepared to immediately follow the trustee’s direction regarding the Estate Funds, and you may be able to expedite the trustee’s decision.’ 5 days after these letters were sent; debtors amended their schedules to disclose all four accounts and to claim 75% of their value as exempt. No objections were made by trustee to the exemptions.
One week later, debtor counsel requested that the bank unfreeze the accounts. The bank refused without the trustee’s permission. Debtors responded that the bank’s actions violated the automatic stay. The bank disagreed so debtors filed a motion for damages based on the bank’s willful violation of the automatic stay. The bankruptcy court denied the motion. Debtors appealed. The court of appeals reversed saying Wells Fargo violated the automatic stay.
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Lawrence Bautista Yang specializes in bankruptcy, business, real estate and civil litigation and has successfully represented more than five thousand clients in California. Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 1000 S Fremont Ave Bldg A-1 Suite 1125 Unit 58 Alhambra, CA 91803.
( Published September 4, 2010 in Asian Journal Los Angeles p. C4 )
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