Protect Yourself From Bank Account Setoffs

November 12, 2019 | By Steffens Law Office
Protect Yourself From Bank Account Setoffs

bank account setoff is a means for a financial institution to access your checking or savings account in order to satisfy a missed payment on a loan or credit card that you have with that institution. For example, if you have a checking or savings account with your bank and you have also obtained a loan from that bank, they may be able to take funds from your checking or savings account in if you fall behind in your loan payment.

The bank may exercise its setoff right in order to satisfy an outstanding debt. It has the right to do this under the terms of the credit card or loan that you signed up for. The bank does not have to give you any notice before it exercises its setoff right and may only inform you after the fact.

The best way to avoid this is to open an account at another bank or credit union and do your banking there. It may seem like a hassle to move your automatic bill payments and direct deposits, but in the end your money will be safer in another bank. The financial institution that you have your loan or credit card through will not be able to access your account at another bank in order to setoff its loan payment.

If you file bankruptcy in Nebraska owing money to a bank that you have a credit card and checking or savings account with, that bank is well within its rights to take the contents of your savings and/or checking account on the day you file your bankruptcy to pay the amount due on the credit card bill. It is in your best interest to keep your money in a bank to which you do not owe money. Many banks offer fee-free checking accounts, which may make the move more attractive.

Some funds are exempt from seizure by the bank. They include the following:

  • Most government benefits, including Social Security and unemployment insurance
  • A percentage of your earned wages
  • Alimony or child support payments
  • Disability or unemployment benefits from your employer
  • Workers' compensation
  • Retirement benefits

If you find that you are having difficulty making your loan payments, you may want to consider this move. Waiting until you file for bankruptcy may well be too late. If you have questions about filing for bankruptcy, contact our Nebraska bankruptcy attorneys today by calling (308) 872-8327.