bank account setoff Archives - Chicago Bankruptcy Lawyer LEEDERS LAW Tue, 21 Nov 2023 21:10:17 +0000 en-US hourly 1 https://wordpress.org/?v=6.9 https://leederslaw.com/wp-content/uploads/2022/03/cropped-cropped-cropped-Leeders-Law-Logo-e1677182027648-1-32x32.png bank account setoff Archives - Chicago Bankruptcy Lawyer 32 32 Bankruptcy -B is for Bank Account https://leederslaw.com/bankruptcy-b-is-for-bank-account Tue, 16 Oct 2018 17:06:37 +0000 https://leederslaw.com/?p=688 Bankruptcy -B is for Bank Account Can I keep my bank account when I file bankruptcy? Yes, you can keep your bank account when you file bankruptcy.  Many people assume that they cannot keep basic things when filing for a …

The post Bankruptcy -B is for Bank Account appeared first on Chicago Bankruptcy Lawyer.

]]> Bankruptcy -B is for Bank Account

Can I keep my bank account when I file bankruptcy?

Yes, you can keep your bank account when you file bankruptcy.  Many people assume that they cannot keep basic things when filing for a bankruptcy.  This is not true. You can keep a bank account, the banks typically will not close your bank account.  One exception would be if you owed your bank money where you have your checking account or savings account, but usually they would just require you to pay the overdraft before they will let you continue business as usual.

Exempt Bank Account

Checking and savings accounts are listed on Schedule B of the bankruptcy petition.   You would then list any available exemption to protect the funds in those accounts.   In Illinois, debtors use the wildcard exemption to protect the money in bank accounts.  The Illinois Code section is 735 Ill. Comp. Stat. 5/12-1001 (b).   This states that “personal property, owned by the debtor, is exempt from judgment, attachment, or distress for rent: b) The debtor’s equity interest, not to exceed $4,000 in value, in any other property.”  So, using the Illinois bankruptcy exemptions, you can protect up to $4,000 in your bank accounts.   This wildcard is also used for furniture, electronics, cell phones, computers, jewelry, and other household goods, so it is important to talk with your experienced bankruptcy lawyer to help you properly use your Illinois bankruptcy exemptions to protect your bank accounts and other assets.

Setoff of a bank account

In bankruptcy, setoff is where you would owe a creditor money, and they are holding funds on your behalf.  The most common setoff is where you have a bank account and owe that same bank money.  The bank is allowed to use the funds being held and apply that to the debt you owe.   Most often, I see credit unions do this most often.  In their security agreements when you open the accounts or incur the debt by taking a loan or a credit card, it states in that small print that you are pledging the bank account as collateral for the debt.  Setoff, is, unfortunately, permitted by 11 U.S.C. § 553.

How do I prevent setoff of my bank account?

The easiest way to prevent setoff is to minimize the amount of money in that account held by a bank or credit union to whom you owe money.   Simple.  Just open a checking or savings account at any other bank where you do not owe money, and change your direct deposits and automatic withdrawals to that new account.  Keeping the setoff bank account at a minimum prevents the creditor from grabbing those funds once you file for bankruptcy protection.

Free consultation with a Chicago bankruptcy lawyer

Finally, feel free to contact me for a free bankruptcy consultation and I can show you how I can protect your bank account in bankruptcy.

Free Bankruptcy Evaluation -Leeders Law

Free Bankruptcy Evaluation -Leeders Law

First
Last
What type of debts do you have?

The post Bankruptcy -B is for Bank Account appeared first on Chicago Bankruptcy Lawyer.

]]> S is for Setoff of bank accounts and bankruptcy https://leederslaw.com/s-is-for-setoff-of-bank-accounts-and-bankruptcy Fri, 17 May 2013 18:59:00 +0000 http://leederslaw.com/s-is-for-setoff-of-bank-accounts-and-bankruptcy I see this issue frequently. Debtor has a Bank Account at Bank A.   Debtor also has a debt owed to Bank A, say for a credit card, personal loan, or overdraft. Any money in the bank account on the …

The post S is for Setoff of bank accounts and bankruptcy appeared first on Chicago Bankruptcy Lawyer.

]]>

I see this issue frequently.
Debtor has a Bank Account at Bank A.   Debtor also has a debt owed to Bank A, say for a credit card, personal loan, or overdraft.
Any money in the bank account on the date of filing is vulnerable, as Bank A has the right of setoff against that account, to pay off the debt to Bank A. 
They say “Possession is nine tenths of the law.”  Bank A has possession of the money in the account, a security interest if you will, and can take those funds to pay the debt.   
Now, it may be possible to force the creditor to return the funds to the bankruptcy estate if the amount in the account was exempted and it violated one of the preference transfer rules.   But there is case law that lets them hold those funds too.  
This is most frequently done by credit unions, I see it often.
The solution?   Open up a bank account at Bank B where the debtor owes no money.   Bank A can only get money in an account with Bank A, they can’t cross over into Bank B to get those funds after the filing of Bankruptcy.

Here is the Bankruptcy code section that addresses this situation.
http://www.law.cornell.edu/uscode/text/11/553

11 USC 553 Setoff
(a) Except as otherwise provided in this section and in sections 362 and 363 of this title, this title does not affect any right of a creditor to offset a mutual debt owing by such creditor to the debtor that arose before the commencement of the case under this title against a claim of such creditor against the debtor that arose before the commencement of the case, except to the extent that—

(1) the claim of such creditor against the debtor is disallowed;
(2) such claim was transferred, by an entity other than the debtor, to such creditor—

(A) after the commencement of the case; or
(B)

(i) after 90 days before the date of the filing of the petition; and
(ii) while the debtor was insolvent (except for a setoff of a kind described in section362 (b)(6), 362 (b)(7), 362 (b)(17), 362 (b)(27), 555, 556, 559, 560, or 561); or
(3) the debt owed to the debtor by such creditor was incurred by such creditor—

(A) after 90 days before the date of the filing of the petition;
(B) while the debtor was insolvent; and
(C) for the purpose of obtaining a right of setoff against the debtor (except for a setoff of a kind described in section 362 (b)(6), 362 (b)(7), 362 (b)(17), 362 (b)(27),555, 556, 559, 560, or 561).
(b)

(1) Except with respect to a setoff of a kind described in section 362 (b)(6), 362 (b)(7),362 (b)(17), 362 (b)(27), 555, 556, 559, 560, 561, 365 (h), 546 (h), or 365 (i)(2) of this title, if a creditor offsets a mutual debt owing to the debtor against a claim against the debtor on or within 90 days before the date of the filing of the petition, then the trustee may recover from such creditor the amount so offset to the extent that any insufficiency on the date of such setoff is less than the insufficiency on the later of—

(A) 90 days before the date of the filing of the petition; and
(B) the first date during the 90 days immediately preceding the date of the filing of the petition on which there is an insufficiency.
(2) In this subsection, “insufficiency” means amount, if any, by which a claim against the debtor exceeds a mutual debt owing to the debtor by the holder of such claim.
(c) For the purposes of this section, the debtor is presumed to have been insolvent on and during the 90 days immediately preceding the date of the filing of the petition.


Contact me today if you have this situation and are looking for an attorney to represent you in bankruptcy and want to protect the assets and money you have in the bank.   Call me at 312-346-7400 or visit my website at www.leederslaw.com. 
Happy Friday.
Terry Leeders

The post S is for Setoff of bank accounts and bankruptcy appeared first on Chicago Bankruptcy Lawyer.

]]>