Several times in recent weeks, individuals I’ve counseled wishing to declare bankruptcy have revealed to me that, in addition to their personal bank accounts, they are also listed as “joint holders” on someone else’s bank accounts, such as an elderly relative, sibling, or friend. (For the sake of clarity, I am not discussing joint bank accounts between married individuals in this post.) Particularly in the case of elderly parents, this is often for convenience or estate-planning purposes, as the parent anticipates the possibility that, at some point, they may be physically unable to gain access to their needed funds. In such cases, the jointly named potential bankruptcy filer may have contributed little or no funds to the account at all; they are simply listed as a user in case their parent needs assistance with finance-related daily activities. They own 0% of the funds in the accounts, yet they are listed as an “owner” of the account for all general purposes. This raises a serious question when they need financial assistance themselves, in the form of bankruptcy: will those funds be protected from the court-appointed bankruptcy trustee, whose job it is to liquidate all available assets for the benefit of the creditors whose debts are to be discharged in the bankruptcy?
In Michigan, where I practice, this question is framed with a point of state law: MCL 487.703 holds that there is a presumption of joint ownership of any funds in a bank account with joint users listed in this way. Although the bankruptcy process itself is governed by Federal law, certain underlying considerations in the process are dependent upon the laws of the state in which the bankruptcy is being filed. This is such a consideration.
What that means, then, is that, in Michigan, if you are listed on someone’s bank account and that account has, for example, $10,000 of that person’s money in it, Michigan state law (and the Eastern and Western Federal District Courts along with it) will presume that $5,000 of that money belongs to you.
The potential effects of that presumption are serious and should certainly be taken into consideration when deciding to file bankruptcy. However, the presumption of joint ownership that I’ve described is rebuttable, which means that, if an individual has evidence that proves that they don’t own the funds in the account, the bankruptcy court should leave the funds unaffected.
Depending on the amount of money involved (bankruptcy trustees earn a percentage of the funds liquidated for creditors’ benefit), this may be easier to accomplish or more difficult to accomplish. Depending on the specifics of each individual situation, there are different ways of listing the joint accounts in the bankruptcy petition to foreclose the possibility that the trustee will become interested in liquidating an account that does not actually belong to the filing debtor. It may even be preferable to have the accounts closed prior to the filing of the bankruptcy, though this is a delicate operation and should certainly not be considered if any percentage of the funds do indeed belong to the filing debtor.
One thing is clear, in any case: all such accounts should be disclosed to your bankruptcy attorney who will, in turn, make the correct decision as to how best to disclose and list them in the bankruptcy petition. Such situations are delicate but are also easily managed by a knowledgeable attorney. Complications such as this often trip up individuals opting to file for bankruptcy without the use of an attorney and are a strong example of how something that seems simple and obvious can have serious ramifications when attempted without qualified legal advice.
If you are a southeast Michigan resident and are considering filing for bankruptcy, please contact me at (866) 674-2317 or firstname.lastname@example.org to schedule a free, initial consultation.