Yes, banks can take your money to pay off debts you owe to them through a legal principle called the Right of Offset (also known as Right of Setoff).
What Is the Right of Offset?
The Right of Offset allows a bank to withdraw funds from your account (checking, savings, etc.) to cover a debt you owe to that same bank, without your permission. This right is usually outlined in the terms and conditions you agree to when you open an account.
Key Points:
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Only applies to debts owed to the same financial institution.
For example, if you have a checking account at Bank A and you default on a personal loan from Bank A, the bank can take money from your account to pay that loan. -
Usually excludes certain types of accounts.
Banks generally cannot offset funds in IRAs, 401(k)s, or certain trust accounts due to federal protections. -
No court judgment is needed.
Unlike most creditors, banks with the Right of Offset don’t need to sue you first—they can act as long as the debt is in default and covered by your agreement. -
Does not apply to debts from other banks.
If you owe money to Bank B, Bank A cannot touch your account—unless there’s a legal garnishment or court order.
When Can a Bank Use It?
Banks often use the Right of Offset when:
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A loan or credit card is in default.
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You’ve stopped making payments on a debt owed to the same bank.
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The debt is not disputed and is considered legally collectible.
Example:
You owe $2,000 on a credit card issued by Chase, and you have $3,000 in a Chase savings account. If you fall behind on your payments, Chase may apply the Right of Offset and withdraw $2,000 from your savings to pay off the card.
Can You Prevent It?
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Keep your deposits at a different bank than where you hold loans or credit cards.
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Negotiate repayment terms before your debt becomes delinquent.
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If facing hardship, consult with a bankruptcy attorney or debt counselor to understand your protections.
If you are considering bankruptcy please and have any questions please call me at (800) 419-8950.
