If you’re filing for bankruptcy, move your money out of Wells Fargo before you file – even if you don’t owe them any money.

It’s long been the practice of Wells Fargo to place what they call a “temporary administrative pledge” on bank accounts when the account holder files for bankruptcy. At that point, Wells Fargo will contact the Chapter 7 trustee to determine whether the funds are exempt or should be turned over to the trustee.

If the trustee tells Wells Fargo that the funds are exempt then the pledge is released. Until then, however, the funds are locked up and the person filing for bankruptcy has no access to the money.

As you can imagine, that doesn’t sit well with most people who are filing for bankruptcy. It’s not as if they’ve got a lot of extra cash sitting around as is, and locking up a bank account has the unfortunate effect of making it impossible to pay the rent and car loan, among other necessities of life.

In a decision handed down on August 26, 2014, the United States Court of Appeals for the Ninth Circuit held in the matter of In re Mwangi that the bank’s actions were perfectly legitimate.

Here’s a link to the decision (the PDF will open in a new tab).

I’m not going to get into the legal details of the case. If you’re a lawyer, you can read it on your own. If you’re thinking about filing for bankruptcy, all you need to know is that Wells Fargo will freeze your account when you file your Chapter 7 bankruptcy case.

Though the decision deals with a bankruptcy case originating in Nevada, this is now (until some other decision comes down on the other side) the law of the land in California as well because the Ninth Circuit covers California. No word on how other parts of the country will handle the issue.

What’s the fix for people who are filing for bankruptcy?

Largely the same solution as for people who have bank accounts with institutions to which they owe money when the case is filed.

Take your money out of Wells Fargo before your bankruptcy case is filed – even if you don’t owe the bank any money.

If you don’t, just accept that you’ll lose access to your money as soon as your bankruptcy case is filed.