How does bankruptcy affect a joint account holder?

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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Written by Jeffrey Johnson
Insurance Lawyer Jeffrey Johnson

UPDATED: Jun 19, 2018

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How a joint account holder will be affected depends on the type of account and the bankruptcy laws in your state. If the account is a savings, checking, or other similar type of account, a joint account holder could be affected. Any account with your name on it can be considered an asset for your bankruptcy estate. Even though the joint account holder will not incur liability for your debts simply because they share a savings account with you, their interest in the account could be affected. A bankruptcy trustee may want to use the funds in the account to satisfy your debts. Depending on your state’s rules and the structure of the account, the bankruptcy trustee may have the ability to use all or fifty percent of the funds in the account. 

That doesn’t mean that a Chapter 7 trustee will successfully grab all the funds in a joint account, however. If you can offer proof that only a certain amount of the money actually belongs to you, or that your name is on the account merely as a convenience to a friend or relative who really owns the account, you may be able to rebut the presumption that the funds in the account belong to despite your name being on the account.  

Don’t be tempted to use a joint account as a way of putting assets beyond the reach of your creditors. Say you open a joint account with your neighbor Fred. You sell your Porsche and deposit the check. Fred then withdraws the check and buries the money in a tin can in his backyard, right next to the fence. This transaction is a fraudulent transfer, and Fred can be required by a creditor or Chapter 7 trustee to return the payment.

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