Financial Tip: Keeping deposits and loans separate

balance sheet okThis applies to all consumers, whether or not you are considering bankruptcy.

Consider keeping your deposit accounts and loans at different financial institutions. If you owe money to a bank or credit union, don’t keep any deposit accounts there. There are a number of reasons to switch your deposit accounts to another bank or credit union.

Setoffs
: A setoff occurs when the bank/credit union takes money from your deposit accounts to pay itself for a loan you have with that institution. Closing your deposit account (or keeping a very low balance) & moving your money to a different institution will reduce the risk of a setoff.

Frozen accounts
: Some financial institutions place a freeze on any accounts held by bankruptcy filers. While it is likely that you will eventually get the money back, you may be without liquid assets for a few weeks or months. If your paycheck is automatically deposited into an account that the bank/credit union has frozen, you will not have access to your money until the freeze is lifted.

Automatic payments: If you have automatic withdrawals set up for your credit card accounts, the withdrawals may be difficult to stop, even if you file bankruptcy. If you need the money in your account to make your mortgage or car payment, you may find that the credit card company has taken it. It is generally easier to close the bank account than to get money back from a creditor who has been authorized to withdraw it from your account.

Not all financial institutions freeze accounts or exercise rights of setoff. Your attorney can tell you which banks or credit unions in your area to avoid. If any creditor improperly removes money from your deposit accounts after you have filed bankruptcy, contact your attorney immediately.

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