Here’s a valuable tip that I offer to my clients during our bankruptcy consultations:
Close your checking and savings accounts if you also have outstanding loans at the same bank.
Now, you may be thinking, “But I love my bank! I’ve been with them for years and they’re so friendly. They gave me a free toaster when I opened my checking account, all the bank tellers know my name, and they give my kids lollipops whenever we stop in.”
That’s all fine and dandy when you are in good financial shape and making your monthly car, mortgage, or other personal loan payments on time. But what if you suddenly find yourself unable to make your loan payments due to unemployment, a costly medical procedure, death of a spouse, divorce, or a multitude of other events beyond your control? And what if you decide to file for bankruptcy to discharge that loan and other debts you can no longer handle?
I’ll tell you what. Your bank will exercise its “right of setoff” (sometimes called a right of offset or banker’s lien) against your bank accounts. This means that your “friendly” bank will withdraw money from your checking and savings accounts, CDs, and money market accounts without your permission and without warning to pay off its past-due loans.
But what if those unexpected withdrawals causes you to bounce checks all over town? Your “friendly” bank won’t care. And, to pour salt in your wounds, it will charge you overdraft fees on those bounced checks.
Ask yourself if you’ll still love your bank when you can’t pay your rent and utility bills, buy groceries for your family, or fill up your gas tank because your bank accounts were suddenly and unexpectedly emptied.
So do yourself and your family a favor. First, withdraw your money and close your checking, savings, and other deposit accounts. Next, open new accounts at a bank where you don’t have any outstanding loans. Then, if appropriate after consultation with a bankruptcy lawyer, file for bankruptcy. I’ll bet your new bank gives out free lollipops too.