20 Aug Before you file bankruptcy: change banks
Your “friendly local ” bank may help themselves to the money in your account if you don’t pay your loan with them. The right of off set allows them to apply the money in your checking account (money they owe to you) against your debt to the bank.
Most consumers are scared to death of a lawsuit filed by a credit card lender. They imagine that the sky immediately begins to fall when a lawsuit is filed. In fact, it takes months between the filing of a lawsuit and actual government sanctioned collection, like levy and garnishment. But the more immediate threat may be the bank.
A creditor with a right of set off (or off set, the terms seem to be interchangeable) doesn’t need to sue you to take money from your account. They don’t have to give notice; you may not see them coming before the balance is zero.
After a bankruptcy, a bank may claim to have the right of off set against the funds on deposit in their bank on the day of filing. It is a kind of lien on the account, dependent on the bank having possession of your funds. Sometimes the bank even claims a right in money deposited to the account shortly after bankruptcy.
The moral of this story is not to keep your funds in a bank to whom you owe money if you are in financial trouble. Opening an account at a new bank may be part of tidying up your affairs in preparation for bankruptcy.
Cathy Moran, Esq.
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