What Happens to Joint Bank Accounts in Bankruptcy?

If you’re filing for Chapter 7 bankruptcy in New York and share a bank account with someone else—such as a spouse, parent, or child—you may be surprised to learn that those funds could be at risk. While joint bank accounts offer convenience in everyday life, they raise complex issues in bankruptcy, especially when ownership is disputed.

Here’s how trustees, courts, and New York law evaluate joint accounts—and what you can do to protect yourself.

💰 Are Joint Accounts Automatically Split 50/50 in Bankruptcy?

Not necessarily. Although New York Banking Law § 675(b) creates a rebuttable presumption of joint ownership, that presumption can be challenged in bankruptcy.

In other words, the bankruptcy trustee may not simply accept that each account holder owns half. Instead, the trustee—and the court—will examine:

  • Who contributed the funds

  • Why the account was created

  • Who used the funds

  • Whether the joint ownership was for convenience only

🔍 Case Example: In re Carella

In Carella, a father added his son (the debtor) to a bank account while preparing for heart surgery. When the son filed for bankruptcy, the trustee tried to claim half the account. However, the court ruled that the father had retained full ownership because:

  • The funds came solely from the father’s Social Security and home sale proceeds

  • The joint title was added for convenience

  • There was no intent to transfer ownership

📚 Result: The trustee’s motion for turnover was denied, and the funds were excluded from the bankruptcy estate.

⚖️ The Trustee’s Perspective: Follow the Money

In Chapter 7, the trustee’s job is to locate nonexempt assets for the benefit of creditors. If you have a joint account, the trustee will:

  • Demand bank statements

  • Look at deposit sources

  • Determine who really owns the funds

In In re Riemann, a husband and wife had a joint account, but all the deposits came from the husband’s income. The wife claimed half the funds as exempt, but the court rejected her claim. She failed to show that her husband made a gift of the money to her, and the court sided with the trustee.

🏛 Constructive Ownership vs. Formal Title

In bankruptcy, courts look beyond the name on the account to determine constructive ownership. This means they analyze the actual control and contributions—not just what the bank account says.

If the debtor controls the account and spends the money—even if someone else’s name is on it—the trustee may argue that the entire balance is part of the estate.

Likewise, if the co-owner is a minor child, as in In re Farrell, the trustee may still claim ownership of the funds unless clear evidence proves they belong to the child.

✅ How to Protect Yourself

If you’re filing bankruptcy and have joint accounts, here’s what to do:

  1. Disclose all joint accounts on Schedule B of your petition.

  2. Be ready to provide bank records and explain the account’s history.

  3. If the funds aren’t yours, gather evidence (e.g., Social Security award letters, paystubs, affidavits).

  4. Your attorney may need to rebut the presumption of joint ownership with clear and convincing evidence.

If successful, these funds can be excluded from the bankruptcy estate.

👥 Common Scenarios

Joint Account With Trustee Concern What Courts May Ask
Spouse Commingled funds, ownership split Who earned the income? Any gift intent?
Elderly Parent Asset shielding or estate planning Who controls the account? Who made deposits?
Minor Child True gift or sheltering assets? Can you prove the money belongs to the child?

📞 Need Help With a Joint Account in Bankruptcy?

At the Law Office of William Waldner, we’ve represented hundreds of New York clients with complex asset situations—including disputes over joint accounts. We understand how to defend against aggressive trustee claims and preserve what’s truly yours.

🗽 Serving Manhattan, the Bronx, Queens, Brooklyn & Westchester
📅 Schedule your free consultation today at www.midtownbankruptcy.com

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