There is something called a right to set off.  This means that a banking institution can take money from your checking or savings account to make a payment on another debt such as a credit card or car loan that you owe the bank.  If you are behind on your payments the terms of the contract will allow the bank to do that.  It is completely legal.  If you are filing for bankruptcy and cannot afford the credit card payments, it is advisable to get a new account at a banking institution where you don’t owe them any money.  That is one reason why banks offer credit or incentives to use their bank.

Once a bankruptcy is filed, the automatic stay under the bankruptcy code should limit the bank’s right to a set off.  Once your bankruptcy is filed, the law prohibits a setoff of any debt that arose prior to the filing of your bankruptcy petition from any creditor.  However, it is still a safe practice to use a bank where you have no credit lines.  There are still occasions where creditors violate the automatic stay and while we can get it corrected, it can take some time to do so.  There are so many banking options, it is better to be safe than unable to pay your bills or mortgage payment because the bank took their offset.  .

If you have any questions about whether a creditor took inappropriate action, reach out to us for assistance and we are happy to evaluate the circumstances.

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