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Can The Bank Take My Money to Pay My Debt? The Right of Set-Off

Bank Account

If you have money in a bank account and you owe that same bank money on a credit card, loan or other type of debt, then the bank may have a right to take your funds. The "Right of Set Off" allows a bank to take money from your bank account to pay any outstanding debts you owe to them. If you fall behind on your payments to credit cards or loans the bank may withdraw money from your bank account to pay the balance owed.

How Does the "Right of Set-Off" Work

Banks generally have the ability to seize funds in a person's bank account for any debts that the person owes to that same bank. How does this work:

Example: If you have money deposited in a bank account with Citibank and you owe Citibank on a credit card, then they may exercise their right of set-off. They may be able to withdraw money from your bank account to pay the debts owed to them.

The right of set-off does not apply if you do not owe that same bank the money.

Example: If you have money deposited with Chase Bank and you owe Wells Fargo on a credit card or loan, then Wells Fargo would not have the right to set-off your bank accounts at Chase to pay the debts owed to Wells Fargo. In most cases, Wells Fargo would have to file a lawsuit in court and obtain a judgment against you, to be able to seize the funds in your Chase Bank account.

Limitation to the "Right of Set-Off"

Banks do not always have the right to utilize the right of set-off. There are laws that limit their ability under certain circumstances to take funds from your bank account to pay a debt owed to them. The following are some of the limitations that apply to the right of set-off.

  • Maintain Low Balances in Your Account - Keep minimal balances in a bank account if you owe a bank money
  • Open A Bank Account In A Bank Where No Money Is Owed-Find a bank that you do not owe any money to and open a bank account with them. Make sure you check all of your credit cards and loans to ensure that you are not banking with a bank that you owe money to. Be careful since it is not always clear through which banking institution a credit card was issued through.

How to Protect Yourself?

If you are holding funds in a bank and you owe that bank money on a credit card or loan it is important that you take steps to protect your funds from the right of set-off. Some of the steps you can take to protect yourself:

  • Maintain Low Balances in Your Account - Keep minimal balances in a bank account if you owe a bank money
  • Open A Bank Account In A Bank Where No Money Is Owed-Find a bank that you do not owe any money to and open a bank account with them. Make sure you check all of your credit cards and loans to ensure that you are not banking with a bank that you owe money to. Be careful since it is not always clear through which banking institution a credit card was issued through.

What To Do If your Bank Funds Have Been Set-Off?

There are procedures that you can follow to try to obtain the funds back. Talk to an experienced attorney who may be able to assist you in recovering the funds that have been seized from your bank. In California, there are procedures that you can follow to contest the bank set-off.

The above is not intended as legal advice. Before deciding what to do it is important that you talk to legal counsel about your particular situation.

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