Wells Fargo and the administrative hold after filing for Bankruptcy


            I’ve been meaning to write about this issue for some time, but it gets pushed to the side to deal with more current issues usually. However, just when I think that Wells Fargo has ceased to be a problem in Bankruptcy, the “administrative hold” on accounts will pop back up and cause real problems for individuals or companies attempting to reorganize through Chapter 13 or Chapter 11.

            The administrative hold is Wells Fargo’s way of throwing a wrench into the ability of individuals or companies to reorganize even if the individual or company does not owe any money to Wells Fargo. Wells will scan the bankruptcy filings each night for the entire United States. If it gets a hit for an individual (even if the other account holder did not file) or a company, it will freeze the entire account for some undetermined period of time. Fortunately, the bank limits the freeze to accounts that contain more than $5,000.00 on the date of the filing.

             Wells claims that it is preserving the assets of the bankruptcy estate for the benefit of the Trustee (See 11 U.S.C. § 542(b) requiring turnover of property to Trustee). While some sense can be made of that reasoning in a Chapter 7, the reorganization purpose of Chapter 13 and Chapter 11 do not support the reasoning of Wells. Short of Court Order, Wells will not release the funds in the account despite the fact that the Chapter 13 debtor needs the funds to commence payments. In a Chapter 11 case, the bank will only release the funds to a DIP account at Wells Fargo or require the individual or company to go to a branch and pick up a check issued to the entity as DIP. This is despite the fact that the Chapter 11 Debtor is really the Trustee and Wells has no duty to preserve the funds for a third party trustee.

         Unfortunately, the administrative hold is here to stay. The Courts (outside of the 9th Circuit in a Chapter 7 case) have not found that such an activity is a violation of the automatic stay despite the damage that has been caused to companies by the action of freezing a corporate account needed for day to day operations. We recently encountered this when a towing company was forced to delay responding to stranded motorists after filing Chapter 11 since Wells had frozen its operating account. This company was in Chapter 11 and owed no money to Wells. It took over 24 hours to move the funds to a Wells Fargo bankruptcy account and allow access to the funds.

        The takeaway from this story is that Wells will continue to freeze accounts with no reason in the future. If you are considering filing any type of bankruptcy, be sure to understand the consequences of having a Wells Fargo account. Also, be sure that your attorney can warn you of such a consequence before you file so that you are not left without funds to meet your daily living expenses.

            At Mickler & Mickler, we attend Court on a regular basis. We have the experience and knowledge to ensure that you receive the correct advice when confronted with difficult financial decisions related to filing bankruptcy. Contact us at 904.725.0822 or bkmickler@planlaw.com.


Bryan K. Mickler