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If you’re experiencing financial troubles and are considering filing bankruptcy, there are some things you need to know about your bank and bank account to prevent problems. We wrote here recently about a bank’s right to offset against money in your account if they are one of your creditors when you file bankruptcy. We typically recommend to our clients that they change banks just prior to filing for Chapter 7 or Chapter 13 as a safeguard.
Unfortunately, some banks don’t make it easy to move your money. And sometimes their policies can create financial problems for you even after you close your account. But a new law under consideration in the House of Representatives may offer valuable protections to all consumers – including bankruptcy filers – and could put an end to disreputable bank terror tactics!
Summary of Legislation
Here’s what HR 3137 – Freedom and Mobility in Consumer Banking Act – offers. This act would:
- Allow a customer to close any account (checking, savings or other) upon request no matter if there is a positive, negative or zero balance.
- Prohibit banks from charging a fee to close an account.
- Prohibit banks from reopening an account when a check or debit request comes through without permission from the customer.
- Require banks to provide available funds immediately on account closure through cashier’s check, electronic funds or other means set by the Consumer Finance Protection Bureau (CFPB).
- Require banks to provide customers with a list of their pre-authorized transactions and direct deposits when the account is closed (i.e. bills that are auto debited to the account and paychecks or other funds direct deposited).
- Prohibit banks from reporting a negative item to credit agencies for a negative balance caused solely by bank fees.
Image source: ConsumerReports.org
Ending Zombie Bank Accounts
One important aspect of this bill is the prohibition on banks reopening an account. This is known as a “zombie bank account” and is an absolute plague on consumers and benefits no one but the banks. A zombie bank account occurs when a consumer closes an account but then it rises from the dead when electronic transactions come through and the bank reopens it.
The bank doesn’t honor the electronic payment request but they do charge your dead account a fee when they bounce the request. For instance, if you have your cable bill set to auto debit from your checking account, close the account and don’t change the payment through your cable provider, when your monthly bill hits the closed account, your bank can re-open it, refuse the payment request and then charge you a $15-$50 (depending on your bank policy) returned item fee.
From there, they can charge fees for your account being in overdraft and reinstitute monthly checking fees. This can rapidly add up to a financial disaster. You may not even know about it for a while if you closed your account and then moved so your statement is coming to an old address. Consumers have seen thousands of dollars pile up as a result of this dodgy bank tactic.
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Banks and Bankruptcy
If this legislation passes, it would go a long way to protecting consumers from predatory bank policies. For now, though, if you are considering filing bankruptcy, you should plan ahead to avoid bank shenanigans and protect your finances. If your bank is one of your creditors, it is particularly important to handle your bank closure carefully.
Once you make the decision to file bankruptcy, you should immediately open a new account at a different bank. Make sure it’s not associated in any way with your old bank. Request a list of direct deposits and auto-debits. If they refuse to provide them, comb through your back bank statements and look for all automated transactions going in and coming out of your account.
Get these changed over as soon as possible prior to closing your account. As soon as your automated cash in and out of your account(s) are taken care of, make a withdrawal of the bulk of the cash from your account without telling the bank you are planning on closing it so they won’t try to hold your funds. After you have cleaned out all of your account(s) and safe deposit box, then notify them of the closure.
For more advice on bank accounts and bankruptcy, contact the law offices of North Carolina bankruptcy expert John T Orcutt. Your first consultation is always free!