When a bank “offsets” an account, it means that the bank seizes funds from an account to satisfy an unpaid debt owed to the bank. For example, a bank may offset (take money from) a debtor’s checking account to pay for a missed car payment where the bank also holds the car note.
Can My Bank “Offset” My Account?
In general yes, a bank or other financial institution has the right to setoff account balances against obligations owed to the bank (or financial institution) by the account holder.
Usually, before a creditor can levy your bank account they must first bring a lawsuit and secure a court judgment against you for unpaid debt (breach of contract), but this is not true for financial institutions, tax collectors, and in a few other limited circumstances.
Therefore, when a bank has a loan to a debtor, and the debtor misses a payment and has money in an account held at the same bank, the bank/lender may use its right of set-off to seize funds directly from the debtor’s bank account and apply the funds toward the missed payment.
The right to offset is rooted in both state law and often in the deposit agreement with the financial institution. Due process is satisfied because the bank has the right, via statute or express agreement, to offset without warning.
Georgia State Law
In Georgia, “a bank with which a deposit account is maintained may exercise any right of recoupment or set-off against a secured party that holds a security interest in the deposit account.” GA Code § 11-9-340 (2014).
Deposit Agreement with the Bank
Often a deposit agreement between a financial institution and a borrower will contain language that expressly grants the bank the right to offset. A set-off paragraph may contain language similar to the following: “We may, without prior notice and when permitted by law, offset the funds in this account against any due and payable debt you owe us now or in the future, to the extent of such person’s right to withdraw.”
Bankruptcy Stops Collection Actions
As soon as you file for bankruptcy protection, all collection action against you must stop including account set-offs and bank levies. If you are deep in debt, possibly facing a situation where your bank may exercise its right to set-off, it is time to explore if bankruptcy is the right solution to get you out of debt.
All of us here at the Law Offices of Barbara B. Braziel want to help you get out from under the weight of financial stress and gain financial freedom. We invite you to read about the clients we’ve helped here.
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