When you file a Chapter 11 bankruptcy, you have to close, as quickly as possible, your old checking accounts.   You have to do this even if your checking accounts are very new.  The account must be opened at a bank that is approved by the Office of the United States Trustee to handle accounts for a Chapter 11 bankruptcy.

When you open the account, it must show that the account is a “debtor in possession” account or what is commonly known as a DIP account.  The reason for this is that bank, you and the United States Trustee are all entitled to have access to the information regarding the account.  The United States Trustee has the right to get copies of all statements.  Your account can be monitored to make sure that all money received is deposited in the account and that all money being paid out is paid out as approved by the Court and/or its rules.  An approved bank has already agreed to let the Office of the United States Trustee have access to the account records if asked and you agree to this when you open this type account.  The bank that you open your account with must also have sufficient assets and be covered by an acceptable Deposit Insurance plan.

You may be required to open up to three accounts, based on the type of business and sources of income you may have.  No all debtors will have to open all three accounts and that will be worked out with the Office of the United States Trustee.

The account that you will always have to open will be a simple operating account.  Money received is deposited in that account and bills are paid from that account.

The second and third accounts are not always opened.  If you have employees, you will be required to open the second account.  This is a payroll account and you will pay your employees from this account.   Into this account is deposited the funds to pay the salaries of the employees and also the amount withheld from the employees salaries and the employer match.  If you have employees and do this each payday, you will have most of the funds to cover employee related expenses.

The third account is an account that would be used to save for sales and use taxes and perhaps 401K pension liabilities and similar matters.  By putting this money in this account each payday, month or some other regular period, you can take the money out of that general account.  This will give you, the Court and the Office of the United States Trustee  a much clearer look at where you are financially while you are trying to recover from the financial issues that forced you to file.  Not having these monies in your general operating account will also help lessen the temptation to spend these funds.

SPECIAL NOTE:  A lot of debtors are uncomfortable with a check that says after the name of the debtor, DEBTOR IN POSSESION.   Debtors are fearful that persons receiving such a check will be worried if it is a good check or if you can or should be writing this check.   A recpient of the check is under no duty to checl to see if it is proper to spend the money this way.

Unfortunately, it is required that any person dealing with a chapter 11 debtor know that they are dealing with a someone in a bankruptcy.   What most debtors do is put the notation after the name  “DIP” and some even put in in lower case.  This has satisfied the Office of the United States Trustee so far and hopefully they will not change their position in the future.

GOOD NEWS:  if you file a Chapter 7 or 13 case, you can ignore this information.

About Nathan Davis, Esquire

Born in Charleston, South Carolina, Nathan Davis has been practicing law for many years. Mr. Davis has a wide variety of experiences having practiced domestic relations, criminal law, social security law having also practiced collection law in the past. This knowledge is helpful when someone needs to restart their financial life. The practice is now primarily bankruptcy and debtor representation work, but, Mr. Davis continues to also practice real estate law, trusts and estates and a general litigation practice. I believe that the most important part of representation is trying to leave you better off when the case is finished than when you started. Although I will do as my client directs, I will always tell you if I think that you are making a mistake. Bankruptcy is about a "fresh start". If you do not make changes in what you are doing, you will be doing what you are doing now in the future. There is no shame in bankruptcy or other steps that you may take to start your life over. Too often, people worry more about things than about themselves, their family or their future.
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