A recent decision filed by bankruptcy judges in the Southern District of New York has determined that banks can freeze debtors' accounts in the Ninth Circuit. What does that mean for you, the Debtor?
This is actually quite a reversal from a previous decision made by the same, influential court. In the Weidenbenner decision (Case No. 14-35443 (CGM), Bankr. S.D.N.Y), it was ruled that the banks violated the automatic stay by freezing the Debtors' accounts. However, in January of this year, the courts reversed their stance on this decision, and ruled that the banks were well within their rights to freeze the Debtors' accounts.
This is also further supported by the so-called Strumpf decision, which rules that the banks are able to freeze the Debtors' accounts while they pursue remedies (such as a relief from the automatic stay) against the Debtor(s). When a bank freezes assets of any kind, including a bank account, they're able to leverage that asset against the Debtor.
However, it bears noting that the bank is not allowed to freeze bank accounts, or any other asset, for an indefinite period while pursuing remedies. Instead, as per the Mwangi decision, a bank should engage the services of a trustee regarding directions on how to disburse the funds.
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