Under U.S. Bankruptcy code section 541, the commencement of a bankruptcy case creates a concept called an "estate". The "estate", consists of all property in which the debtor holds an equitable or legal interest, wherever located and by whomever held. The estate is strictly determined as of the date the bankruptcy petition is filed. Therefore, money held in the debtor's bank account on the date he or she filed bankruptcy is considered part of the "estate". Any transfer out of that "estate" may be recovered by the trustee. The United States Supreme Court has held that a transfer by ordinary check occurs, not on the date that it is presented to the creditor (or payee) as payment, but on the date the bank honors it.
When a person files a voluntary petition for bankruptcy and has a balance in their checking account, those funds are subject to being taken by the court appointed bankruptcy trustee and distributed to all creditors having claims. This is true even if there are still outstanding checks that have not yet cleared the account. Furthermore, if after the date the bankruptcy is filed, the bank honors checks that have previously been written, the debtor may have to repay those funds to the trustee. In some states, such as Oklahoma, debtors are entitled to exemption of funds held in the bank account up to 75% of wages earned in the previous ninety days. However, if the funds are not wages they are not exempt even in Oklahoma.
The fact that it was the bank that paid funds out of the checking account and not the debtor who took the funds is not a good defense. Additionally, the fact the debtor no longer has the funds in the account to pay to the trustee is not a good defense. The Court can order that the debtor repay the value of the funds paid out by the bank on the previously written but late honored checks. While the trustee could go after the creditor who presented the checks in a separate adversary proceeding, it is generally easier for him or her to go after the broke debtor. This can be done with a simple motion in the bankruptcy case as opposed to the more burdensome adversary proceeding that the trustee would have to use against the third-party creditors who got the funds.
In the end, it is a debtor's responsibility to make sure that any checks written on the eve of bankruptcy have cleared before the case is filed. While this precaution will not insulate creditors from preference actions, it will shield debtors from actions to recover estate property. Debtors may also want to consider whether using cashier's checks, rather than ordinary checks, to pay bills on the eve of bankruptcy offers any benefit under applicable state and federal law. This would get money out of the account prior to the bankruptcy filing and thus not part of the bankruptcy estate. Anyone considering filing bankruptcy should consult a competent bankruptcy attorney.