Signatory vs. Owner: Is that Bank Account Actually Your Asset in Bankruptcy?

A common issue in a bankruptcy law practice is when a debtor is completing their intake, and they ask: “My name is on my elderly mother’s checking account so I can pay her groceries,” or “I’m the treasurer for a local non-profit/small business, and I’m a signatory on the corporate operating account. Is the bankruptcy trustee going to freeze those funds?”

The short answer is no, not automatically.

In bankruptcy, there is a legal distinction between having signatory authority (the administrative right to sign checks) and having an ownership interest (equitable title to the money as an asset). However, because your name is attached to the account, the burden of proof is on you to show how those funds are being used.

By Alexander Hernandez, J.D., Professor, and Author of Consumer Bankruptcy Law (Routledge).

Key Takeaways: Signatory Authority vs. Asset Ownership

• Signatory Status Does Not Equal Ownership: There is a distinction between signatory authority and an ownership interest. Being an authorized signer on a business or relative’s account does not automatically make those funds a part of your bankruptcy estate.
• The Burden of Proof is Yours: Because your name is attached to the account, you bear the burden of proving to the trustee that the funds belong to someone else and demonstrating exactly how those funds are used.
• Reviewing Bank Statements: Bankruptcy trustees thoroughly review bank statements, requiring at least 90 days and sometimes years of records.
• Bank Transfers: Transferring funds to and from a signatory account into your personal account can be flagged as hidden income, disqualifying you from Chapter 7 or raising Chapter 13 payments.

The Business Context: Corporate Signing Authority

As discussed in a prior article regarding being listed on corporate documents, your legal relationship to a business entity matters when it comes to determining what assets are part of the bankruptcy estate.

If you are an officer, director, or trusted employee of a business, you may have signing authority on the corporate bank account. However, the trustee has no right to seize funds from a business account just because you are authorized to sign the checks.

The Red Flag for Trustees

When bankruptcy is filed, certain financial documents are provided to the trustee, which must be received no later than 7-10 days before the 341 Meeting of Creditors.

The trustee will review your bank statements to determine if there were direct transfers from the business account into your personal checking account without being accounted for as legitimate W-2 wages or documented owner draws.

The Convenience of Personal Bank Accounts and Co-Signers

With personal bank accounts, usually involving family members, you might be added to the account for convenience purposes. For example, an aging parent adds an adult child to their bank account solely so the child can help pay bills, manage medical expenses, or handle banking if the parent becomes incapacitated.

Likewise, the trustee will review the bank accounts to see how they are used. This means that the trustee will look to the source of the funds in that account. For example, deposits into that account are from the family member’s pension or Social Security.

The bankruptcy trustee will also look for any transfers to your personal account or purchases or bills paid from that account that are yours.

Analyzing Bank Statements for Transfers

You can expect the bankruptcy trustee to request at least 90 days (and sometimes up to several years, depending on the jurisdiction) of bank statements for any account where your name appears as a signatory.

Inward and Outward Transfers

If money moved from the signatory or business account into your personal account, then there has to be a legitimate explanation or a match to a payroll stub or a documented out-of-pocket expense reimbursement. Otherwise, the trustee may classify these as hidden personal income or assets, which can artificially inflate your disposable income or result in a turnover demand.

Conversely, the trustee will check if your personal money was deposited into the signatory account. If you have been routing your paychecks into a business or relative’s account, that could be interpreted as a tactic to shield money from creditors. The trustee will likely object and argue that those funds are part of your bankruptcy estate.

This could affect your eligibility for Chapter 7 bankruptcy if it increases your disposable income when comparing Schedule I (Income) to Schedule J (Expenses), and for the Means Test as well. For Chapter 13, it could also increase the monthly plan payments.

Steps Debtors Should Take

If you are a signatory on an account, do not try to hide it. Instead, prepare your defense before you file for bankruptcy.

Get the original account opening documents from the bank to show whether it was set up as a joint tenancy or a convenience/authorized signer account. Make sure to have at least the last 6 months of bank statements readily available.

If there are any transfers between your personal bank accounts and signatory accounts, make sure those transfers are identified and disclosed to your bankruptcy attorney.

Educational Resources

• For Institutions: Colleges and universities can purchase or request examination copies of my textbook directly from Routledge Publishing.
• For Students & Practitioners: Single print and digital copies are available via Amazon Books.
• Video Lectures: Stream comprehensive legal breakdowns and video explanations on the Prof. Hernandez YouTube Channel.

Bankruptcy Court & Consumer Resources

Explore a deep dive for consumer guides and court directories to navigate your legal options:

• A step-by-step master guide on Filing for Bankruptcy and Navigating the Petition.
• Access full directories for the Federal Bankruptcy Court System and Trustee Contact Information.
• Protect your assets by reviewing your specific State Bankruptcy Exemptions or compare them against the Federal Bankruptcy Exemptions.
• Prepare for your court date with the updated brief on the 341 Meeting of Creditors Rules and Procedures.

Please note that the information on this site does not constitute legal advice and should be considered for informational purposes only.

Bankruptcy Statutory References:

• 11 U.S.C. §341. Meetings of creditors and equity security holders