How Bad is Automatic Transfer from Line of Credit???

[MarieT]

I think I have really messed up here. Here I have not used any of the credit cards in seven months plus and kind of forgot about my line of credit on my checking account. It automatically pulls money out and adds to my checking account if my account is short. So I was looking at my checking account today and realized that it had transferrred money from the LOC to checking as I was short (for the first time in 3 months). I had a couple of unforeseen expenses...not spending frivolously.

The payment is automatically taken out of my checking account and I did in fact make an extra $1200 payment on it in February before we had figured out we were doing BK. The monthly payment is about $450 and I have never missed the monthly payment.

So how much trouble am I in since I "used" this line of credit? I already put a deposit down with a BK attorney before this happened and I paid for the attorney out of this account...partly why I ran short! I owe the LOC about $25k.

[keepinitreal]

Stop by or call the bank you have your checking account with. Ask them to cancel the connection between your line of credit and your checking account so this won't happen any more. Ask your attorney about how this automatic transfer to your checking affects your future filing.

[music12]

if you owe the LOC at your bank, you should open a checking account in a different bank before filing. otherwise they might freeze the money in your checking account to pay off the LOC. your lawyer should have told you that already.

[keptdigging]

Yes, ask your attorney of course. And yes, delink so this doesn't happen again. And yes, your checking account should be at a bank where you don't owe any money.

Meanwhile: what is the amount of the transfer? Even if you've inadvertently created a non-dischargeable debt for that amount, it is only for that amount. And the amount might be small enough that it doesn't get challenged.

Oh and you should be sure to ask about that $1,200 payment... could be a preference if you file within 90 days of it. Not the end of the world, but could make you an asset case.

[MarieT]

I will ask our attorney. I also looked back further and my husband had transferred over $1,000 to checking from the LOC in January so that means we "borrowed" a big amount then and I had not realized that. Our income varies wildly which is why I had the LOC set up. We have more than paid that $1,000 we transferred with the $1,200 payment in February plus 4 payments of $450 a month. The amount that the bank automatically transferred this week was only $300.

I'm not sure about closing down the overdraft account since that's how the bank automatically takes their payment out. I know we have to close our accounts at this bank because they will take whatever money we have in our accounts to pay the LOC and also freeze our accounts but I need to get all the timing figured out like cutting off the paycheck auto deposit before we close the accounts. We have five accounts at this bank so it's complicated. Is it best to open up the new account before you close the old one?

I already have a new bank picked out that is local and they had sent me a certificate for $50 awhile back if we open an account there. We also have a credit uion that we have borrowed for car loans many times so we could probably have an account as we already have a car loan there right now.

My concern with this latest thing was that they would think I was being frauduent in some way.

I do not hink we will be filing within 90 days of that $1200 payment so no worries there.

[Stilltheone]

We had an overdraft account linked with our US Bank checking account when we filed. The amount we owed was $500. US Bank would pay it off when our direct deposit came in and we just kept taking it back out. We never had any issues with us taking money out shortly before filing bankruptcy. BUT, our balance was only $500.

The only issues we've had is we can't close our checking account. US Bank refuses because we still "owe" them that money. I even went so far as to take our discharge papers and our filing papers into US Bank to show them that that debt was discharged. They refused to close it. So we have an open checking account with US Bank that hasn't had activity in almost 2 years.

[music12]

i wouldn't open any account where you also have a car loan. the local bank you mention sounds good. yes, open new accounts before closing the previous one - you need to be sure that your new accounts won't be declined.

[MarieT]

Okay ...I did not think about being declined for a checking account. Is that fairly common? I know our credit score is horrendous right now if the new bank pulls it plus it will show we owe the LOC at our other bank.

We are planning to keep the car at the credit union where we have the loan for that car so I don't know if that makes any difference as far as opening a checking account there.

We owe about $25,000 on our line of credit so that's a lot. I initially thought we would try to just pay it since we have always had such a great relationship with this bank but then I found out about the preferential treatment of debt thing and really, it does not make any sense if we file BK to try to pay the bank back.

[MarieT]

Update...got checking account set up at new bank but have not closed down old one yet. I was freaking out a bit when the lady said they had to pull our credit but she set up account so must have somehow squeaked by! One more item taken care of...now if I could just get all these darn froms filled out for the attorney!!

[keptdigging]

I may be wrong but I think they check with a different system that looks at your banking history, not your credit history... looking to see if you've walked away from overdrafts, scammed, etc. etc.

[music12]

yes, there is the chexsystems report, which is different from the credit report. however, often banks look up the credit report as well.

[MarieT]

I may be wrong but I think they check with a different system that looks at your banking history, not your credit history... looking to see if you've walked away from overdrafts, scammed, etc. etc.

Well maybe that is why we were given the new checking account then since we have never walked away from overdrafts or any bank charges and all the payments on the two overdraft accounts are taken automatically out every month and those have never been late. I just figured when they looked and saw that we had not paid on three credit cards since last May and June, they would deny us.

I feel like we are just throwing money away now making payments on the overdrafts since our attorney says that is unsecured debt so will be happy when we can close those accounts down...preferably before the next automatic payments come out!