Filing for bankruptcy gives you a fresh start, helping you get out of debt and take back control of your finances. But it can also bring small, frustrating problems to your daily life. One common issue is losing access to online payment portals and automatic payments, which many people use to manage their bills. Even co-debtors who don’t file bankruptcy themselves may experience these inconveniences if their co-signer does, potentially also losing access to payment setups. These changes can make it harder to stay on top of bills and manage money during an already stressful time. This article breaks down these challenges and gives helpful tips to make things easier.
Disruptions to Online Portal Access
One of the first challenges bankruptcy filers face is losing access to online payment portals. Many creditors automatically block access to these portals for accounts included in bankruptcy. This restriction often takes effect immediately, leaving filers unable to log in to manage accounts or make payments.
Why Creditors Disable Access: Creditors restrict portal access to comply with the automatic stay, a bankruptcy protection that prohibits any attempts to collect debts. This means creditors cannot send bills, demand payment, or display balances due, as these actions could violate federal law. Violations may result in fines or court sanctions, so creditors err on the side of caution by disabling access. Additionally, many systems cannot distinguish between bankrupt and non-bankrupt accounts, leading to blanket restrictions to avoid errors.
This issue becomes more pronounced in Chapter 13 cases, where the bankruptcy trustee typically pays creditors directly. Any balances shown on the portal are often inaccurate, and creditors fear that maintaining access could result in inadvertent collection attempts or confusion for debtors.
Implications of Portal Lockout
Losing access to online portals creates several practical challenges for bankruptcy filers:
Tracking Balances and Payment Histories: Without access, verifying payment histories or balances becomes difficult, especially for debtors monitoring progress under a repayment plan. Account statements, which are crucial for staying organized, are also unavailable.
Making Payments to Creditors:
- Chapter 13: Payments are generally handled by the bankruptcy trustee, but in some cases, debtors may need to make direct payments, such as for mortgages, car loans, or student loans. Without portal access, these payments may need to be made through slower methods like mailed checks or phone payments.
- Chapter 7: Most debts are discharged in Chapter 7 cases, so ongoing payments are rare. However, secured debts tied to assets you wish to keep—like a car or home—may still require direct payments during the bankruptcy. Restricted portal access means using alternative payment methods, which can be less efficient.
Impact on Automatic Payments
One of the less obvious but frustrating consequences of filing for bankruptcy is the cancellation of automatic payments. Many creditors cancel pre-scheduled payments as soon as they are notified of the bankruptcy filing, which can leave debtors scrambling to find alternative ways to pay their bills and keep their accounts current.
Why Automatic Payments Are Canceled: The automatic stay prohibits creditors from taking any action to collect a debt, including automatic withdrawals. These withdrawals are considered a form of debt collection. To comply with the law and avoid penalties, creditors must cancel all pre-scheduled payments. Moving forward, the debtor must initiate payments directly, as creditors cannot withdraw funds without explicit permission.
Examples of Affected Payments
This cancellation can disrupt a variety of recurring expenses, such as:
- Utilities: Payments for electricity, water, cellular or internet services may stop, risking service interruptions.
- Insurance Premiums: Health, auto, or home insurance payments may be canceled, potentially leading to coverage lapses.
- Subscription Services: Payments for streaming platforms, gym memberships, or other recurring services may be interrupted, leading to account suspension or cancellation.
Potential Consequences
When automatic payments are canceled, the effects can be significant:
- Missed Payments and Late Fees: Without realizing that auto-payments have stopped, debtors might miss deadlines, resulting in penalties or service cancellations.
- Disrupted Essential Services: Missed payments for utilities or insurance can lead to service disconnections or loss of critical coverage, compounding stress during an already difficult time.
Real-Life Challenges for Debtors
Filing for bankruptcy can create logistical hurdles for managing finances, particularly when alternative payment methods are required.
Accessing Alternatives
When online portals and automatic payments are no longer available, debtors must rely on methods like mailing or telephonic payments:
- Mailing Payments: Sending checks or money orders through the mail can result in delays, lost mail, or errors, creating uncertainty about on-time delivery.
- Telephonic Payments: Paying by phone often involves long wait times, errors in processing, and additional fees.
Logistical Problems
Other practical challenges include:
- Lack of Nearby Branches: For in-person payments, rural or underserved areas may lack accessible branches.
- Limited Phone Support Hours: Many creditors’ support hours conflict with work schedules, forcing debtors to take time off or struggle to make calls during breaks.
Bank Account Freezes and Closures During Bankruptcy
One common concern among bankruptcy filers is whether their bank accounts will be frozen or closed. While this is rare, there are specific circumstances where it can happen, depending on the bank, the type of account, and whether you owe the bank money directly.
Temporary Freezes for Bankruptcy Review
Wells Fargo is known to temporarily freeze accounts for a bankruptcy review. These freezes are not permanent and primarily occur to coordinate with the bankruptcy trustee. Most banks do not freeze accounts solely because of bankruptcy.
When Accounts Might Be Closed
Accounts are typically closed only if there’s a direct debt tied to the actual bank account, such as:
- Overdraft Debt: Accounts with negative balances may be closed to prevent further losses.
- Unrelated Debt (e.g., Credit Cards): If you owe the same bank on a credit card, your account generally remains open unless the debt is tied directly to the account. Credit cards are usually not bank related.
Credit Unions Are an Exception
Credit unions are much more likely to completely sever ties with members who include loans or debts to the credit union in their bankruptcy. This means they may close your bank accounts, cancel credit lines, and deny future services.
- Proactive Communication Is Key: Unlike large banks, credit unions are typically smaller and more approachable. It’s often helpful to call your credit union before filing to ask how they plan to handle your accounts. This can give you clarity and allow you to plan for alternative banking arrangements if necessary.
Hope for Restoring Online Portal Access
For years, bankruptcy filers have faced the inconvenience of losing access to online payment portals as creditors typically disable these services upon filing. However, a recent Maryland case, In re Klemkowski (2024), sheds light on the possibility of restoring such access during bankruptcy proceedings.
In In re Klemkowski, a debtor requested the court compel her mortgage servicer to reinstate access to its online portal, which she had used for payments prior to filing Chapter 13. The court found that the debtor’s prepetition contractual right to use the portal was protected as part of her bankruptcy estate. The servicer’s decision to terminate this access was deemed a violation of the automatic stay under Section 362(a)(3) of the Bankruptcy Code, which prevents creditors from taking actions to control property of the estate.
The court highlighted that denying access to the portal made it unnecessarily difficult for the debtor to comply with her repayment obligations, creating barriers that contradicted the purpose of bankruptcy law. While the servicer argued that their systems could not support portal access for bankrupt accounts, the court found this claim to be a matter of business preference rather than technical impossibility.
Although monetary damages were not awarded in this case, the court emphasized that any act violating the automatic stay is void. This decision marks a step toward addressing how creditors handle electronic payment systems during bankruptcy and signals hope that courts may increasingly favor solutions that make it easier for debtors to meet their obligations.
As this area of law evolves, In re Klemkowski offers a framework for challenging portal restrictions and reaffirms the importance of balancing creditor rights with the debtor’s need for a fresh financial start. Debtors who experience similar issues should consult their attorneys to explore whether their rights under prepetition agreements could support efforts to restore online access.
Tips to Minimize These Inconveniences
You can minimize these disruptions with careful planning before and after filing for bankruptcy:
Before Filing
Taking a few strategic steps before filing for bankruptcy can help smooth the transition:
- Open New Bank Accounts: If you suspect you will have issues with your bank, you can set up accounts with institutions you don’t owe money to, ensuring your funds aren’t frozen or restricted. If you’re concerned about your credit affecting this process, it’s still possible to open a new checking account even with bad credit.
- Transition Automatic Payments: Transfer recurring payments to a new account to avoid disruptions after filing.
After Filing
Once you’ve filed for bankruptcy, staying organized and maintaining communication with creditors can help you avoid unnecessary headaches:
- Contact Creditors: Proactively reach out to creditors for alternative payment methods and confirm account handling.
- Keep Records: Document all payments and correspondence to avoid disputes and ensure compliance.
- Opening a New Bank Account May Be Difficult: Some banks may be hesitant to open accounts for individuals with a recent bankruptcy filing, as they view it as a financial risk. Additionally, if your credit report reflects poor credit or an active bankruptcy, it can trigger stricter eligibility requirements or the need to open second-chance accounts with limited features.
By taking these steps, you can mitigate many of the disruptions that come with bankruptcy, allowing you to focus on rebuilding your financial foundation with fewer obstacles. Proactive planning and communication are key to making this challenging process more manageable.
How Steven Grace Simplifies Bankruptcy for Chicago Residents
Chicago bankruptcy attorney Steven Grace has seen firsthand the many ways bankruptcy can complicate life. With his extensive experience and commitment to helping clients, he will guide you through every step of the process. Whether it’s addressing financial disruptions or helping you plan for a smoother transition, Steven Grace is here to ensure your bankruptcy process is as seamless and stress-free as possible.
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