Don’t think your bank is your friend when you file for bankruptcy

California bankruptcy guru Cathy Moran makes a good point: although many consumers have personal relationships with their banks, and sometimes some good feeling for the institution, your bank is not necessarily your friend when you are filing for bankruptcy.

The principal problem is that banks have a legal right of “setoff,” meaning that they can simply take money you have on deposit and apply it to loans that you have outstanding, bankruptcy or no bankruptcy. Think about it; how easy can bill collecting be? You don’t have to call and threaten any one, or pay lawyers and filing fees down at the courthouse. Just vacuum the funds out of one account in to another. And the bankruptcy code allows them to do this under the setoff doctrine.

The solution to the problem? A little bit of planning with your bankruptcy attorney before you rush to file. Move deposits into institutions where you don’t have loans outstanding, and you wikll have avoided a very unpleasant surprise after you file your BK case

 

By Doug Beaton

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