Behind on loan can bank take my money?

by Kristin
(NC)

If I am behind on a loan, can the collections department of a bank go in my checking account and take the money out without my consent?

Reply from DebtCollectionAnswers.com:

What you’re talking about here is called the “right of offset.” When a bank or credit union takes money you have on deposit with them to pay a loan that you owe them, that is called a “set-off. “

It makes sense that, if you owe a financial institution money, it would want to go after if the funds you have on deposit with them to pay the loan. Credit unions in particular often ask customers to sign contracts authorizing them to offset vehicle loans with funds on deposit with the credit union. If you are having financial problems, however, you may need that money to pay essential living expenses like food or rent.

In general, financial institutions may have the right to offset loans with funds you have in an account with them. However, there are some restrictions. For example, federal law generally prohibits a federally chartered bank from taking money from your checking or savings account to pay a credit card you have with the same financial institution. In addition, certain funds that you have one deposit may be “exempt,” or safe from creditors. For example, if you receive Social Security income that money is probably safe.

It’s not uncommon for problems to arise here. Sometimes money is taken out of bank accounts to pay debts even when it shouldn’t be. For example, if you have a bank account in which your Social Security income is deposited, but you have other income deposited in that same account, it’s possible that all of that income could end up at risk.

In addition, if you are sued and a creditor gets a judgment against you, then the creditor may be able to go after money in your bank accounts – even accounts you hold at other financial institutions.

To be on the safe side, if you are falling behind on your bills, we recommend you do NOT keep your checking and savings accounts at a financial institution where you have a car loan, credit card, or other loan. If you have a judgment against you, and you cannot pay it, then please be sure to talk with a bankruptcy attorney to learn whether your bank accounts and other property you own are safe, or whether creditors can seize those funds.

Once the money is out of your account, it can be difficult to get it back, even if the financial institution made a mistake. You're better safe than sorry here!