banks taking money Archives - Bailey & Galyen Bankruptcy Law Firm

Life can be stressful in our modern world. Add debt problems to the everyday stress and it can become terrifying. While not being able to pay your credit card bills, your medical bills or any of your other debt is bad, imagine waking up one morning and finding out that every last dime you had in your bank account is gone. Your bank can take all of the money you have in your bank account without any warning if you owe the bank money for a credit card, car loan, mortgage or any other debt. This is called the right of setoff.

A bank’s right of setoff is ancient, going back as far as the Roman Empire. The theory behind the right of setoff is that the bank has a lien on all of a customer’s property that is in the bank’s possession for the amount due to the bank from the customer. A debtor/creditor relationship is created when a customer opens a general depository account with a bank. Such a bank account constitutes a debt where the bank is the debtor and the customer is the creditor. When the customer takes out a loan with the bank, such as through a credit card, the bank becomes a creditor of the customer. It is this mutual debtor/creditor relationship that gives rise to the bank’s right of setoff.

Before a bank can exercise its right of setoff, the debt owed to the bank by the customer must have come due. If a bank has a right of setoff against a customer’s deposit, that right survives the customer’s death and continues against the decedent’s personal representative. A bank can also exercise its right even when you have filed for bankruptcy. This right is one of the few exceptions to the protection of your assets provided by bankruptcy. Unlike normal setoffs, the bank cannot simply take your money. First, the bank will freeze your account and then ask the bankruptcy court for permission to take the money.

The lesson here is to close any bank accounts you might have if you owe that bank money and you cannot pay the debt. It can be troublesome to do this given that many of us have automatic deposits and/or automated bill pay. But going through the aggravation of changing accounts is far better than going to buy groceries and finding that all of your money is gone.

Earlier this month, the Texas Supreme Court once again cast its arms around Big Business and shoved Texans out the door.

Not so long ago, if you were the victim of an accident wherein medical bills were incurred you could present the total amount of his bills to a jury even if your insurance had paid the majority of those bills. This was fair. After all, one of the elements of damages that you are entitled to is pain and suffering. One way to convey how much pain you suffered is to show the amount of bills you had to pay to not have that pain anymore.

But that has changed. The Texas Supreme Court has ruled that the only bills you can present to a jury are the ones you still owe.

Let me give you an example: Let’s say that you are the victim of an accident wherein your medical bills are $100,000.00. Let’s further say that you were responsible enough to have medical insurance (which, by the way, you paid dearly for because medical insurance is not cheap). In our example, your insurance paid $90,000.00 of your bill and has a lien to get reimbursed of $10,000.00.

The Texas Supreme Court has ruled that the only amount you can present to the jury is $20,000.00 (the $10,000.00 left over from the original bill plus the $10,000.00 insurance lien). Will $20,000.00 give the jury an accurate picture of how injured you really were? No. So, whatever pain and suffering you would have received is now likely reduced by a large amount.

But let’s take this a step further. Under this new law, the person who hit you and caused the accident, caused you to incur medical bills, caused you to lose time from work, and caused you the pain and suffering now benefits from YOUR insurance.

Yep, the person who slammed into you AND his insurance company get the benefit of all those premiums that YOU paid. The bills HE caused are reduced by the insurance YOU paid for.

It is as if you are being punished for being responsible enough to carry insurance.

And here is a head scratcher: On one hand, we have Federal Government trying to force everyone to buy insurance while the Texas Supreme Court says, yes, but you better never use it in car accidents!.

Excuse me, Texas Supreme Court, but your bias is showing. Again.

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And Now, Speaking on Behalf of Big Insurance: The Texas Supreme Court By Steve Sanderfer