Beware of the Bank's "Right to Setoff."
Under some circumstances, your bank can take money from your checking or
savings account to satisfy a debt. This so-called "Right to Setoff"
allows the bank to remove funds from your account and apply the funds
to debt owed to the bank. This right is recognized under State law, as
well as the U.S. Bankruptcy Code.
Normally, creditors are prohibited from collecting or attempting to collect money from a debtor in Bankruptcy. However, a bank's "Right to Setoff" is an exception to the rule. Unfortunately, some Bankruptcy debtor's don't find this out until it's too late.
In order to avoid getting caught in this trap, a debtor who banks at an institution that is also a creditor should withdraw the funds from the account, close the account, and open a new account at another institution, prior to filing for Bankruptcy. Prior to closing any such account, the debtor should also cancel any auto-deposit authorization, such as payroll direct deposit.
If you are in Suburban Chicago and have questions or concerns about the "Right to Setoff," contact Crystal Lake Bankruptcy lawyer Timothy Brown for a free consultation.