Can the Bank Take Your Money If You Owe Them | Expert Tips


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Can the bank take your money if you owe them? Many bank account owners usually ask this question today. Thus, we have written this atrticle to highlight this effectively. If you owe money to a bank, they may be able to take money placed into your current account to repay outstanding debts on other accounts you maintain with them in extraordinary circumstances. This is referred to as the ‘right of set-off.’

Set-off, in broad terms, is money taken from a person’s account by their bank or other financial institution in payment of a debt that the individual owes that banking institution. Set-off is based on the premise that if two people owe each other cash, one of them should be able to set off the balance owed against the amount owed to the other.

Consider the case of Mary and Jane, two housemates who agree to split expenditures. Jane owes Mary $75 after she buys $150 worth of goods for them to share. Jane can put off the $50 Mary owes her against the $75 debt Jane owes for the goods, decreasing Jane’s debt to $25.

How can my bank do a set-off if it doesn’t owe me any money?

Can the Bank Take Your Money If You Owe Them

If you’ve had a savings or checking account, the financial institution where you have the account owes you the sum in that account. In reality, a saving account is a loan owed to you by a financial organization. You don’t have a large sum of money in their vault with your name inscribed on it.

The money on the reserve is not your money; it belongs to the banking institution, which has promised to allow you access to the funds “in your account” if you follow the conditions of your contract with them. It has also assured you that it will pay you the money you are owed when you place a withdrawal request.

If you default on a loan you are due to a financial institution where you have a checking or savings account, it can offset the sum it owes you—the funds in your account—against the amount you owe on the loan if you fall behind on repayments. To give you an example, Sam has a bank-issued vehicle loan and is two months behind on his $500 monthly payment. He also has a checking account with the same bank, with which he has a $1000 balance.

The bank used the $1000 sum in Sam’s checking account to offset the $1000 he owes on the car loan. In practice, the set-off zeroes out Sam’s bank checking account and brings his automobile loan up to date.

What Issues are influenced by Bank Set-Offs?

Can the Bank Take Your Money If You Owe Them

Set-offs can generate a variety of issues, including:

Occurrence with little or no advance notice

In a traditional garnishment, the creditor must first sue you, issue you a formal complaint, and obtain a judgment—either by “default” if you don’t answer by the timeframe or by winning the litigation. Only then does it have the authority to seize your assets.

Set-off, on the other hand, normally requires no previous warning to you. Because a bank is not required to notify you that it is about to make you pay the money you owe by deducting funds from your checking and savings accounts, a variety of problems, both immediate and long-term, can arise.

Fees for non-sufficient funds (NSF) usually accumulate quickly.

One of the most noticeable issues during set-off is reducing a bank account’s balance to zero. Thus, there will be no money available to settle any outstanding checks or debts that have been scheduled to post to your account. If they are sent unpaid, your checking account will be billed NSF (non-sufficient funds) fines.

Furthermore, many of your now-unpaid recipients will very certainly add their own NSF fines to the amount you owe them to cover their extra admin costs. Fees on a deposit account can quickly add up, leaving you with a large negative value before you even understand what’s happening.

Account closure threats

During a set-off, your financial institution may add insult to injury by threatening to cancel your bank account if you don’t swiftly deposit sufficient money. To step up the account to a positive balance, this will be required to pay off the NSF fees and any other costs. Furthermore, some of the outstanding check payees will try to cash or deposit their checks twice, potentially resulting in further NSF fines if you do not clear them.

Fundraising difficulties

It can be hard to come up with the funds to clear your bank account during set-off. You’re short on cash since you need to pay and clear the payees on the non-cleared invoices and debits.

Whether the checks/debits were intended for your local supermarket, a support contribution for your ex-spouse, or your car payment or insurance, you will almost certainly face discomfort as well as other more tangible negative consequences.

Regardless, you’ll be under a lot of stress to make those checks/debits clear, which will make it difficult to maintain enough money in the bank account.

Inability to use checks and savings accounts

As you undoubtedly know, writing NSF checks, particularly ones that aren’t paid right away, means you’ll either be unable to use checks altogether or will be allowed to do so only in very restricted and unpleasant ways.

Some specialty consumer reporting organizations, which may not be well-known, specialize in offering banking firms details on customers who have had their accounts closed due to negative balances or other bad behavior. If you can’t bring your bank account up to date in time to prevent it from being terminated, you might have problems opening a new bank account or credit union at most other financial firms.

Frequently Asked Questions

Can the bank take your money if you owe them?

Yes. The bank can take your money if you owe them, and this is known as the bank set off.

Are there any bank set-off limits?

Yes. There are some reasonable restrictions. Set-offs may not be possible if you have below $1,000 on deposit at a government financial institution. Financial firms are also prohibited by federal law and regulation from deducting money from your account to repay missed buyer credit card transactions that you owe the firm.

This will only occur if you have already enabled it to make repeated payments from your income to cover your bank card. Additionally, a company account cannot be used to cover personal obligations due to a bank executive. Likewise, you cannot settle off the treasurer’s bills with funds in a custodial account.

How do I avoid set-offs?

Because the set-off right is so powerful, you should avoid circumstances where you might be set off. As a result, it’s best to avoid having your primary checking and savings accounts at the same financial institution where you owe a debt as much as feasible. You may be required to have an account with the financial institution, but maintain a low balance and keep your principal accounts somewhere where you have no debts.

Is it possible for banks to take your money without your authorization?

A bank can’t use the right of offset to take money from your account against your agreement unless all of the following conditions are met:

  • You are the owner of both the current account and the debt. With joint debts and joint accounts, the situation becomes a little more complex.
  • Both the current account and the debt are with the same bank. A bank cannot deduct funds from your account to pay for a debt owed to another corporation.
  • They’re taking money to pay off a debt that’s past due. If the loan repayments are current, they cannot make money by way of set-off.
  • They’ve told you that if you don’t reach them or pay back your arrears, they may exercise their right of set-off.
  • They’ve considered your unique circumstances and if accepting the money would not put you in a difficult position.

Banks rarely exercise this right in practice. If your bank has exercised the right of set-off, they must call you to outline how you can prevent it from happening again.

Can bankruptcy reverse a set-off?

No. In most cases, debtors’ offset claims are ignored under bankruptcy act. As a result, if you declare bankruptcy shortly after your banking firm completes an offsetting, the differential is probably to be finished as well.

According to the Bankruptcy Code, the bankruptcy filing “does not impact the right of a creditor to offset a mutual debt owed by such creditor to the debtor.” In other words, if you owe a debt to a financial institution while having money in a checking/savings account, and the financial institution exercises its set-off rights by emptying the account(s), your bankruptcy filing will not remove the set-off.


In conclusion, banks come with diverse merits. On the other hand, they may take your money if you owe them. If you need more help in this regard, the highlight above will be indispensable for you.