Is this a lost cause? Claiming money from creditor AFTER discharge!

[ManInSpace]

Here is the situaton:

Right before my filing for Chapter 7, BofA withdrew almost $8,000 from my account. There was no notice, no judgement, they just withdrew it supposedly to "recover a charged off account", which was my business credit card, not a personal credit card. My bankruptcy was already in the works, and it was filed 2 days later as planned, the business credit card in question was also included in the list of debts, even though the business was an LLC, but we included all personall guarantees for that LLC in the personal BK.

When BofA withdrew the funds from my account, I had another check clearing the same account on the same day, as a result, BofA created an overdraft of $4500 in my account. A month later, while the BK process was going on, BofA withdrew money from my other unrelated business account to cover the overdraft in the 1st account, again without notice or warning.

All this time, my BK attorney kept writing letters to BofA demanding that they deposit money back or transfer it to the trustee, etc. etc. BofA never responded even once. Now, BK7 is discharged, the original business credit card that they used as an excuse to withdraw the money has been discharged too.

My question: Can I claim this money from BofA? Can I go through Small Claims court and force them to return the money since they ignored the bankruptcy process and ended up as a "preferred creditor"? Unfortunatelly, my BK attorneyis no help, he says that I can, but I don't really trust the guy, he never even brought up the issue in the meeting with the trustee. Let me know if I have any recourse here!! THANKS!

[HHM]

Nope, it is a lost cause.

They probably have some sort of cross collateralization embedded in their lending agreement that allows them to do this that gives them a security interest in any money you have on deposit with the bank to cover any debt you owe to the bank.

[albacore44]

I agree with HHM. Sorry to hear this happened. i cannot stress more the importance of planning your BK. once you know you were going to have to file, you should have opened another account with a neutral bank, and moved most of those funds to the new account for protection. i planned my filing for over a year, and when i decided I was making the last payment on my Wells credit card, I opened a new account at a Credit union, set up direct deposit, and let my Wells account die a slow death.

[catleg]

It sounds kind of like BofA exercised a right of setoff "post petition" for a "pre petition" debt (the $4500 overdraft). Which would not be legal. Does anyone else see it that way?

[AngelinaCatHub]

I agree with HHM. Sorry to hear this happened. i cannot stress more the importance of planning your BK. once you know you were going to have to file, you should have opened another account with a neutral bank, and moved most of those funds to the new account for protection. i planned my filing for over a year, and when i decided I was making the last payment on my Wells credit card, I opened a new account at a Credit union, set up direct deposit, and let my Wells account die a slow death.

Very wise Albacore. It is a shame he got clipped only days to filing. If he had filed, he might have had a chance.

BTW, where is my favorite girl? You know, the Avatar Queen? 'Hub

[justbroke]

BofA did something similar to me. There's no recourse. In the worse case, the Trustee could recover the offset (setoff) as a preference. From what is written above, it doesn't even read as though the "other business account" was included in the bankruptcy. (Perhaps it was an LLC or other corporate-entity.)

[JackBondLove]

I don't see why is it even important. Going into the BK filing, you are essentially zeroed out, so any cash that would have been there on the filing date would have become property of the BK estate. It sounds like this is an issue b/w the trustee and BofA.

[keptdigging]

So many people get hit by this sort of thing, it seems like when someone joins the forum it's the first thing we should warn them against! It's tragic because it's so avoidable... at least until all the banks merge into one.

Really the day you know you're going to miss a payment with a bank is the day to find a new bank and quietly move your funds and redirect your deposits.

There is some discussion as to whether they can only do this with business accounts and whether it can go across merging banks being operated separately (Wachovia-Wells for example.) And in this case, what about a post petition offset for a pre-petition debt.. does that violate the automatic stay? The obvious answer is: Why take the risk? Why give the bank an opportunity?

Catleg would seem to have a point, but right or wrong, B of A has the cash and you'd have to fight them to get it back. And their lawyers handle this stuff every day.

====

Separately, for the original $8000, if that were deemed preferential, the money would get distributed to creditors, not you. So your lawyer's failure to bring it up with the Trustee hasn't hurt you in any way.

[debtsucks]

How DO you know if your bank is affiliated with other credit cards? I have 53rd and that is one of the things I have been worrying about lately.

[frogger]

I don't see why is it even important. Going into the BK filing, you are essentially zeroed out, so any cash that would have been there on the filing date would have become property of the BK estate.

Not necessarily. We had exempted more cash than that.

[ManInSpace]

Thanks for the replies

Thanks to everybody for your informative replies!!

A couple of points that I'm still queezy about:

Yes, I understand that there is some type of personal guarantee that was involved in the business credit card account that became the basis for BofA to withdraw funds from my account. My question though is more about the fate of those funds AFTER the BK has been filed? What was the proper and LEGAL way this creditor distribution was supposed to be treated by the Trustee? Was the trustee supposed to request that money from BofA? Was BofA LEGALLY OBLIGATED to turn that money over to the Trustee? That's what I'm more interested in, because if they WERE legally obligated to turn over the money and they ignored multiple requests to comply with the law, then it might be a learning lesson for all members of this board for the future!

Secondly, as I understand, the creditors are supposed to stop all collection efforts while you are in BK. Is withdrawing money from one account to cover an overdraft in another account of a person in active BK constutues "collection efforts"?????

Finally, I agree with frogger, my understanding that I can exempt something like $25,000 cash in BK, isn't it? Filing BK doesn't mean that you should be absolutely pennyless going into it. I have three children and non-working wife, so this $8,000 doesn't even cover two months of our living expenses. The fact is that the money actually came from my parents who advanced the money to us to help us out while we were going through this crap. Instead, they helped BofA, as it turns out. I'm sure the trustee would exempt this money no problem.


Thanks again for all great info, I wish I came across this forum 6 months ago.

[keepmine]

Finally, I agree with frogger, my understanding that I can exempt something like $25,000 cash in BK, isn't it

The amount you can exempt depends on the amount your state allows as an exemption.

[StartingOver08]

Actually, the Trustee does NOT exempt your funds. You and your attorney specify in your petition what you want exempted as allowed by your state's statutes. As Keepmine said, the amount you can exempt is governed by your state's statutes. Check your exemptions here www.legalconsumer.com Every state is different! Do not rely on information that you do not verify with your state's statutes and your attorney. The Trustee will not exempt funds that you have not specifically exempted in your petition. The burden is on you to fill out your forms to your best advantage.