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Will the credit union unfreeze my funds after my bankruptcy is discharged or can they keep it?

East Stroudsburg, PA |

I filed chapter 7 bankruptcy in Pennsylvania and my credit union froze my savings account because I owe them money on a credit card. My attorney said that I will lose that money because credit union have certain rights.

Attorney Answers 4

Posted

Your attorney is correct. Banks holding deposit accounts have the right of setoff (sometimes called offset) if their depositor owes a debt to the financial institution. The United States Supreme Court has ruled that these banks, or credit unions, may freeze depositors' accounts after filing bankruptcy in order to preserve these offset rights. These rights are somewhat similar to the rights of a holder of a consensual leave therefore they are not subject to your exemptions.

I am happy to answer general questions about my practice areas on this website. . However as I'm sure you understand we do not have an attorney/client relationship. Therefore my suggestions do not constitute legal advice. I urge you to contact counsel in your jurisdiction from whom you feel you can obtain trusted information. http://www.drescherlaw.com

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4 comments

Derek R. Caldwell

Derek R. Caldwell

Posted

I agree that Credit Unions have this right. I disagree that regular banks do. There are special rules pertaining to Federal Credit Unions that are in the authorizing statute that are not contianed in the federal laws allowing national banks.

Ronald Jay Drescher

Ronald Jay Drescher

Posted

See Citizens Bank of Maryland v. Strumpf, 516 U.S. 16 (1995). Set off is a right under state law that is not restricted to credit unions but resides in all similarly situated banks.

Ronald Jay Drescher

Ronald Jay Drescher

Posted

Borrowers need to be particularly careful about the cross-collateralization provisions in credit union loan documents because it frequently means that if the borrower has a car loan and a credit card loan they will BOTH be secured by the car.

Derek R. Caldwell

Derek R. Caldwell

Posted

Thanks for the info on Citizens v Strumpf. I was generalizing from NC law wherein Banks do not have the right of set off, but CU's do. I agree that cross collateralization provisions can make your car and your depository accounts security for credit card debt to a credit union.

Posted

Usually the credit union (or any creditor) has a right of set off. For instance, you have a line of credit through your credit union for 10,000 and you have 7,000 in your checking account.

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Posted

Every credit union has their "members" sign an agreement called "cross collateralization" (called set off if a bank does it) which says that if you owe money to them, they can take your deposit account, such as checking or savings.

It is easy to forget this part of the agreement as it is usually presented to you after you have been waiting for a long time to open the account & is in very small print.

Hope this perspective helps!

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Posted

Your attorney is correct. I normally advise clients to draw down their deposits at credit unions they belong to that they also owe money to prior to filing of their case to avoid this issue.

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