Why would this happen? It is due to a strict reading of the law. What
happens is that, when you file bankruptcy, you turn over legal ownership
of all your assets (including the money in whatever bank accounts you
have) to the bankruptcy trustee. So, essentially, it isn’t legally your
money any more. Wells Fargo Bank, in an effort to protect unappreciated
and defenseless bankruptcy trustees everywhere, wants to make sure that
the trustees’ money is kept safe from the depredations of debtors.

Wells Fargo Bank does have a legal justification for this with the case
Mwangi v. Wells Fargo, 432 B.R. 812 (9th Cir. BAP 2010).

Of
course, the vast majority of accounts with more than $5,000 in them will
be unfrozen with no payment to the trustee. That’s because the trustee
returns property to debtors that he can’t keep – stuff that is either
worthless or exempt from collection. In California, debtors are allowed a
“wild-card” exemption of up to almost $23,000. That means any
collection of assets, including cash in a bank, worth up to $23,000 will
be returned to the debtor.

There may be circumstances where a
debtor should file bankruptcy at a time when he has nonexempt cash in an
account, but those are few and far between. If Wells Fargo ever turns
over cash from a frozen account to a trustee, I will immediately think
of malpractice on the part of the debtor’s attorney.

So the Wells Fargo practice of freezing accounts, while
legally-sanctioned, appears to be useless except for the purpose of
inconveniencing people of lesser means.

In the meantime, my advice to would-be debtors: get your money out of Wells Fargo accounts.

Also, in lieu of such situations, always be mindful that there are
plenty of resources for debt counseling, bankruptcy and many other
financial problems. If you are having trouble with your finances, then
seeking advice from credible and professional entities is hardly every
anything less than beneficial. Even if such problems are unavoidable,
those same entities can provide you debt relief and bankruptcy services
that can help you in a bind.