i have an overdrawn bank account and am wondering if its dischargable as the rest of my debts under chapter 7?
Actually, let's back up. Yes, the debt you owe to the "bank" on overdraft can be discharged in bankruptcy. I am going to outline the typical overdraw scenario (whether that is your case, is another issue).
Parties, (1) bank, (2) debtor (you) and (3) merchant (the entity the debtor made a purchase from).
Debtor buys $200 worth of stuff from Merchant. Pays by check.
Merchant submits check for payment.
Bank pays merchant.
However, by paying merchant, bank overdraws debtor's account by $150.00.
Freeze: At that point in time, the debtor owes a debt to the bank. The merchant has been paid, so NSF and bad check laws don't apply.
Most banks offer overdraft protection, sometimes tied to a savings account, a credit card, and oft times as a separate line of credit. And even if your account doesn't have OD protection, if the bank overdrew the account and paid the merchant, the bank made a "choice" and simply created a debt that the debtor owes to the bank. The bank could have simply not honored the payment. If the account has OD protection, that is a simple line of credit, just like a credit card.
It would actually be very rare for the bank (the deposit institution) to prevail on a fraud claim against the debtor (the bank had a choice to honor or dishonor payment), so yes, overdraft is dischargeable in BK. However, pull out all your money from that bank and don't expect to be able to bank there in the future.
12 lawyers agree
Family Law Attorney
Nope. NSF checks are cosidered fraud. Sorry.
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Chapter 7 Bankruptcy Attorney
Typically, the debt you owe to the bank would be eligible to be discharged, but if you are placed into Chex System & are unable to open a bank account anywhere, bankruptcy will not resolve this problem. Hope this perspective helps!
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6 lawyers agree
I vote with Berkus.
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