What is “Right of Offset?”

By: San Francisco Bankruptcy Attorney, Jeena Cho

Did you read your contract carefully when you signed up for your credit card? How about your mortgage? Car loan? How about your checking/savings account?

Chances are, there was a “Right of Offset” provision in the contract that you were not even aware of. Right of Offset is the bank’s way of ensuring that it is paid the money it is owed. Here’s how it works. Let’s say you have a credit card with Bank of America and a checking/savings account. If you miss your credit card payment, Bank of America will offset your checking/savings account and pay itself.

The offset provision only applies if it’s the same bank. In another words, if you have a credit card with Chase, Chase can’t take money out of your Bank of America account. Only Bank of America can. So, what can you do to protect your hard earned paycheck?

Segregate your funds. If you do have a checking/savings account at the same bank where you owe money, move your money. Open a new bank account and move your direct deposit and all other deposits into that account. Make sure you go to a bank where you don’t owe any money. Also, if you go to a credit union, be aware of cross-collateralization.

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