Bill to shield non‑debtor funds in joint accounts draws sharp debate

Susan Williams, a Connecticut consumer bankruptcy lawyer, told the Banking Committee that Connecticut’s handling of joint accounts forces judges and debtors into unfair outcomes and prevents some people from filing bankruptcy. “This is a very harsh and unjust result,” Williams said, arguing the state should adopt a mechanism — such as a rebuttable presumption — to let courts determine whether funds in a joint account belong to the debtor or a non‑debtor co‑owner.

Supporters including Neil Crane, another longtime consumer bankruptcy attorney, gave concrete examples lawmakers said illustrate the problem. Crane described a client whose mother’s $27,000 insurance payout was on a joint account and was taken by the debtor’s creditors after a bankruptcy filing. “If you have money in a joint bank account or a bank account with someone else and that money is taken, it’s gone,” Crane said.

Why it matters: Under current Connecticut law cited repeatedly in testimony (Conn. Gen. Stat. §36a‑2‑90), a person whose name appears on a joint account may expose the entire balance to judgment creditors or a bankruptcy trustee, even when the co‑holder contributed the funds. Witnesses said the result denies debtors a meaningful ‘‘fresh start’’ in bankruptcy and strips third parties of funds they provided for convenience.

What lawmakers heard: Attorneys from the bankruptcy bar recommended statutory revision rather than adding a narrow exemption. Susan Williams said her written testimony includes suggested language to establish a rebuttable presumption and allow the co‑owner of an account to present direct proof that funds are not the debtor’s. Testimony repeatedly noted a four‑year state statutory look‑back for transfers (and a separate two‑year federal look‑back), which can expose funds withdrawn or accounts altered shortly before a bankruptcy filing.

Banking industry concerns: Representatives of banks and credit unions told the committee they oppose the current draft of Senate Bill 300 because it could put financial institutions between competing claimants and require banks to determine which funds in an account belong to which person. A Connecticut Bankers Association witness warned the measure could force operational decisions about funds that banks cannot reliably make from transactional records alone.

Legal and procedural context: Witnesses referenced court decisions and recent legislative changes. Attorneys cited Carrillo (1997) and recent Connecticut decisions as background for why they believe legislative clarification is needed. One industry witness also warned the committee that the legislature’s 2023 amendment changing certain standards of proof may already have shifted the legal landscape, and asked that any change be crafted carefully to avoid unintended consequences.

What’s next: Committee members said they intend to review the written proposals submitted by the bankruptcy roundtable and consider substitute language that would create a fact‑finding process for co‑owners to establish that funds were deposited for their sole or predominant benefit. Lawmakers and testifiers identified potential jurisdictional overlap with judiciary committee work on exemption statutes and asked staff to refine language before any possible markup.

Ending: The hearing closed without votes on the bill; sponsors and witnesses agreed to continue drafting and follow up with the committee on specific statutory language.