Can a personal bank account separated for 1099 business use, be protected from creditor seizure in bankruptcy? 18 Answers as of December 24, 2013

I have a unique situation where I administrate benefits and care for a handicapped adult. Their guardian puts about $2000/mo into a special checking account each month. The checking account is in my name only (personally) but it is used exclusively for this designated purpose, as clearly laid out in my independent contractor agreement with the guardian. I am allowed to pay myself the contracted fee from this account, and use the debit and checks associated with this account exclusively for the disabled adult’s maintenance etc. Every line item is heavily receipted and documented. It is all very legit, and I've been doing this for years. It would all stand up just fine in an audit of me, the guardian or the person I serve. I just really don’t want to ask the guardian to change this arrangement, or I found a business or whatever, just because I have to file personal bankruptcy. Will I be able to successfully keep this account separate and protected from being seized in my personal bankruptcy?

Ask a Local Attorney. 100% Anonymous. Free Answers.

Free Case Evaluation by a Local Lawyer: Click here
Robert S. Payne, Utah Bankruptcy Attorney
Robert S. Payne, Utah Bankruptcy Attorney | Robert S. Payne
Yes. You can keep it safe. You just will need to be able to document that it isn't your money, you have no ownership interest in it, and you are not contributing to the account.
Answer Applies to: Utah
Replied: 12/24/2013
Bird & VanDyke, Inc.
Bird & VanDyke, Inc. | David VanDyke
Yes you should not have a problem with this account. If you are using 703 exemptions I would just explain the reason for the account and exempt the entire filing date balance.
Answer Applies to: California
Replied: 12/20/2013
Stuart P Gelberg
Stuart P Gelberg | Stuart P Gelberg
While you are in bkry CREDITORS will not seize anything. The TRUSTEE may. List it as property held for another in the Statement of Financial Affairs and document to the trustee what you have stated below. How about having as close to zero in the account on the day you file bkry and thereby avoid the issue?
Answer Applies to: New York
Replied: 12/20/2013
Stephens Gourley & Bywater | David A. Stephens
Yes if you can prove those facts.
Answer Applies to: Nevada
Replied: 12/20/2013
Law Office of Mark B. French
Law Office of Mark B. French | Mark B. French
When you file for relief under chapter 7, an "estate" is created that consists of all of your assets. You may be able to remove some assets from the estate pursuant to available "exemption" laws. Fortunately for you, property of the estate does not include assets like the funds in this account that you hold "legal" but not "equitable" title to (in plain language, it is not really your money) pursuant to Section 541(d) of the Bankruptcy Code. The account needs to be listed on the Statement of Financial Affairs as "property held for another".
Answer Applies to: Texas
Replied: 12/17/2013
    Musilli Brennan Associates PLLC
    Musilli Brennan Associates PLLC | John F Brennan
    I would confer with your bankruptcy attorney, and suggest that the account should be in the name of an entity or "in trust for" the beneficiary but cannot sat more without knowing the details. Get professional advise!
    Answer Applies to: Michigan
    Replied: 12/17/2013
    The Law Office of Darren Aronow, PC
    The Law Office of Darren Aronow, PC | Darren Aronow
    If your social security number is on the account, then it can be seized and then you would have the burden of proving it is not your money.
    Answer Applies to: New York
    Replied: 12/17/2013
    David R. Fondren, Attorney at Law
    David R. Fondren, Attorney at Law | David R. Fondren
    You can leave the account as it stands. List it on your schedules with a briefer explanation that this is not your money, except for your fee, and you don't deposit your own money into it. You are signing all documents under the penalty of perjury and are placed under oath at the meeting of creditors to tell the truth. Promptly follow the trustee's instructions regarding additional documentation requested. They may request it before the meeting. They usually will not review it at the meeting, but have you provide it then, or send it later. Put yourself into their shoes and you can anticipate what they will want to see.
    Answer Applies to: Missouri
    Replied: 12/17/2013
    OlsenDaines | Rex Daines
    Yes, as long as you do not co-mingle funds, the funds will retain their character. In essence, you are holding money in trust for the care of another person. As long as you have been doing this consistently and accurately (not overpaying yourself and then replacing funds, etc) then the bankruptcy court will have no claim on that money. It is also very important to correctly list this on the bankruptcy petition.
    Answer Applies to: Oregon
    Replied: 12/17/2013
    Marc S. Stern
    Marc S. Stern | Marc S. Stern
    It needs to be scheduled on the Statement of Financial Affairs as property held for another person. There should be a detailed description of what the account is and how it is used. That should do it. You might also plan your filing for a time when the account is at its lowest point in the month.
    Answer Applies to: Washington
    Replied: 12/17/2013
    Deborah F Bowinski, Attorney & Counselor at Law | Debby Bowinski
    Your situation is not a simple one by any means. Even without such bank account questions, the issues involved for self employed individuals filing for bankruptcy can be surprising and complicated. I strongly encourage you to consult with and hire an experienced bankruptcy lawyer to guide you through the process. To try to answer your specific question, it really depends upon what state you live in, what other assets you have, and what allowable exemptions there are for you to claim. It may also depend upon the practices of the panel trustees in your jurisdiction.
    Answer Applies to: Colorado
    Replied: 12/17/2013
    Danville Law Group | Scott Jordan
    Yes, in the Statement of Information, there is a category where you report your holding money for other persons. As long as it is well documented, the account is really not yours and should be free from your creditors.
    Answer Applies to: California
    Replied: 12/17/2013
    Goldsmith & Guymon
    Goldsmith & Guymon | Marjorie Guymon
    I recommend that you establish a guardianship over the adult. That way, the monies paid over for the individual will truly be in the name of the person, not you. Technically that is what should be done. Then the assets will be protected from your creditors.
    Answer Applies to: Nevada
    Replied: 12/17/2013
    The Troglin Firm | William M. Troglin
    Based on your explanation of the account, it is not properly set up and you might have to prove to the Bankruptcy Trustee that it is not an asset belonging to you. The account should be set up in your name as Trustee, Conservator, Administrator or whatever title you hold.
    Answer Applies to: Georgia
    Replied: 12/17/2013
    Charles Schneider, P.C.
    Charles Schneider, P.C. | Charles J. Schneider
    You have bad legal advice respecting how you created your bank account it should have been a trust account. Your facts only make a good case to litigate with a Trustee. A Trustee is an attorney who makes his/her money seizing assets from Debtors. When he seizes your asset {bank account not held in trust} he will reward himself and his law firm with fees from it. Can you pay enough to your own attorney to defend it?
    Answer Applies to: Michigan
    Replied: 12/17/2013
    A Fresh Start
    A Fresh Start | Dorothy G Bunce
    There is nothing special about an account that is set up for exclusive business use that protects it as exempt in bankruptcy court. What you appear to be doing with this account is acting as a fiduciary, and the account should have been set up as a fiduciary account. However, most bankruptcy trustees are reasonable and if you are able to document that the money was not in fact, entirely yours, the portion that belongs to the beneficiary should be protected. If you are going to act in this kind of capacity, you ought to understand the laws that apply to you as a fiduciary. What would happen if one of your creditors seized this money?
    Answer Applies to: Nevada
    Replied: 12/17/2013
    Janet A. Lawson Bankruptcy Attorney
    Janet A. Lawson Bankruptcy Attorney | Janet Lawson
    Yes, you can protect this account. Describe the account just as you have done in your email. Label it "a resulting trust". This would all go on Schedule B.
    Answer Applies to: California
    Replied: 12/17/2013
    Steele, George, Schofield & Ramos, LLP
    Steele, George, Schofield & Ramos, LLP | Alan E. Ramos
    You list the account on the Statement of Financial Affairs in answer to Question #14 - Property Held for Another. The trustee will want to see the documentation for the arrangement, but this should not be a problem.
    Answer Applies to: California
    Replied: 12/17/2013
Click to View More Answers:
12 3 4 Free Legal QuestionsConnect with a local attorney