The Ninth Circuit Court of Appeals recently rendered its decision in the Mwangi case, dealing whether a debtor can assert a claim against his bank for placing an administrative freeze on his bank account pending a determination of the debtor’s exemption claim as to the funds in the account.
Eric Mwangi and his wife filed a chapter 7 bankruptcy petition. They had several bank accounts at Wells Fargo Bank. Following the bankruptcy filing, Wells Fargo placed an administrative freeze against the accounts and requested the trustee advise the bank on how he wanted the bank to pay the funds. The bank informed the trustee that it would maintain the hold on the accounts until it received instructions from him, or until 31 days following the section 341 meeting of creditors. After the bank’s action, the debtors amended their Schedule C to assert an exemption in the accounts. Promptly after filing their amended Schedule C, the debtors requested that Wells Fargo lift the hold on their accounts so the debtors could access the funds, contending that their claiming of the exemption removed the accounts from the bankruptcy estate. The bank refused, and the debtors filed a motion for sanctions against the bank. After an adverse ruling against them on remand, the debtors filed an adversary class action against the bank, alleging violations of the automatic stay.