Do you ask your prospective bankruptcy clients where they bank? It matters, you know, if they owe that bank money. The common law right of set off can make your client’s revered bank branch as big an enemy as the debt collectors.
My clients are often worried about the collectors who call on the phone and harass them about their bills. I have to point out that they call because they don’t have other quick and inexpensive means of collection. The typical unsecured creditor has to sue the client first, provide notice, and an opportunity to defend before they can access the client’s funds on deposit. Not so the bank that holds your deposits.
Imagine: client has a personal loan with his bank and is behind on payments. Under the right of off set, the bank can simply take what’s in the debtor’s account and apply it to the debt owed the bank. It can happen without warning and can generate a cascade of bounced checks and overdraft fees.
The other creditor who can take money from bank accounts without first filing suit is, of course, the IRS. The IRS however gives the debtor plenty of warning that a levy is coming. No such notice from the bank.
So, point this out to prospective debtors, especially if there is likely to be an interval before the bankruptcy case is filed: have your funds in an institution to whom you owe nothing.
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