Imagine the scenario: You come upon tough financial times. Perhaps you or your spouse lost a job in North Carolina, and you are trying to hang in there on one income. You have had to miss a few car payments to the bank holding your car loan. Other debts are growing as well.
If the bank where you have your defaulting car loan is also the bank where you or your spouse’s paycheck goes to, there is great risk. The last thing you need to see is your checking account frozen or funds taken from it by your bank to pay that car loan debt. However, if you do not address the debt situation in a timely manner, you create this risk.
Right to offset
As reported by Bankrate.com, an offset is precisely what can happen. The right to offset the unpaid debt with the bank account funds held at the same institution is often in the paperwork you signed when you created one or more of those accounts.
Joint accounts are also at risk
The company you owe may take your funds to pay your debt even if the bank account is a joint account, owned by someone else, with you. Thus, if you share an account with a spouse, and your spouse’s paycheck flows into that account, those funds may be taken as well.
Credit card debt cannot be offset
However, the bank cannot offset your funds for credit card debt you may owe it. Credit card debt is, fortunately, an exception to the right to offset. Other loans, however, such as the car loan, private loan and mortgage loan are all fair game.
Be proactive to protect yourself from offset
Some people make the mistake of not regularly reviewing their banking balances or reconciling their accounts. If an employer deposits paycheck income weekly or biweekly, it is possible that several paychecks may disappear before the unaware consumer realizes what has happened.
To prevent the disappearance of your balances, open new bank accounts at an unrelated banking institution before you start missing those payments. You can change any direct deposit transaction to go to the new bank account. Also, be sure to clear out the funds at the old bank and put them in the new bank account.