Cross-Collateralization / Checking account seizure / Tax refund questions

[lorelei]

So, I'm reading posts from some people who saw a bank or credit union empty their checking account to apply the funds to a delinquent/defaulted credit card. I - foolishly - submitted my tax return earlier this week and directed the IRS to deposit my refund in a checking account at a bank where I also have a credit card.

Whoops.

So, I'm looking for the experiences of people whose bank or credit union took checking or savings account money to apply the funds toward a credit card. Can you please tell me:

1. Was it a bank or credit union that did it?
2. How long after you stopped paying on your cards did it happen?
3. Were the funds taken out the same day as you received a large deposit? (In other words, I'm wondering if there is computer software that says, "Hey! Over here! Big deposit made, come take the money!)
4. Did you have a judgment against you before the funds were taken?
5. Finally, to anyone, do you think it makes sense to close the account before the IRS refund is supposed to come through? If so, what happens to the refund?

[vicmost]

Sorry that happened to you...I don't have any answers but in my opinion it would make sense to close the account before the refund came through. I would think they would just send you a check at that point or another letter requesting a valid account.

[chicagoannie]

There HAS to be a judgment against you before any funds can be taken.

If you are currently judgment free you should be ok.

[lorelei]

ChicagoAnnie, I don't think so - not if the checking account and credit card are with the same bank. If it's a credit card with one bank and a checking account with another, than yes. But I might have misunderstood?

[discouraged]

I would just get up early every morning and check my account and as soon as I saw the money in there I would be at the bank when it opened to withdraw it. Closing the account and having the check going back to the IRS, especially at this time of year, I would think it could just get lost somewhere.

Just my 2 cents, for what they're worth.

[lorelei]

I would just get up early every morning and check my account and as soon as I saw the money in there I would be at the bank when it opened to withdraw it.

Watching it like a hawk, I tell ya.

[discouraged]

Good because that electronic is a lot faster than a check. I flat out told the preparer that I was filing bankruptcy (it was easy to see why from last years taxes to this - laid off). Turns out his wife is laid off too so he just said, I assume you want this mailed to you. He was very understanding and helpful.

[DYLAN150]

I am wondering about the very same with Bank of America. On the 1st of March I will be 18 days late and may have one more check deposited there, hope I am ok and will be at the bank when it opens.

[lorelei]

Dylan, I haven't paid since July. That said, I've had all my paychecks direct deposited there until recently without incident. You're not even a month late yet. That's "oops, forgot to put the check in the mail" territory

[DYLAN150]

Lorelei: I would be a little nervous about that. Bank of America has already starting calling me (computer)

[discouraged]

B of A is awful with that computer tactic. It always calls me at 8:45 or 8:50, just to beat the deadline of 9:00. But, I have my house with them and it has taken them 8 months to hit me with the attorney's letter of eminent sheriff's sale. But - I do not have a bank account with them (thankfully they are not in my state or it's possible I would have done that) so I don't know what they would do. But, it's always better to be safe than sorry.

[chicagoannie]

lorelei - what did you end up doing? I now see that you have a credit card issued by your bank (did not catch that 1st time around.) Did you end up closing the account (the IRS would then send you a check once your direct deposit did not go through - it would delay your refund by about 3 weeks) or did you keep the account open? There are folks on this forum who had money taken from their accounts after defaulting on a card and it was before the bank obtained a judgment.

[lorelei]

Yeah, I haven't done anything yet since today is a government/bank holiday. I'm going to call the IRS tomorrow to see if they can either put a stop to the direct deposit or put it in a different bank account, and if not, I'll ask what happens if I close the account. Otherwise, I'll be watching for deposits made into my bank account several times a day.

[lorelei]

OK, so here are some answers.

I just got off the phone with the IRS and they said my automatic deposit is set to go on Friday. It's too late to change the auto deposit info. If I close the account before then, they have to wait for the bank to return the funds and then they send me a check, a process that takes 3-4 weeks.

Ugh. Now what?

My state refund is supposed to go through tomorrow. I'm leaning towards seeing how that goes (and grabbing the money out ASAP) and if all goes well with state, hanging tight to get the federal funds. If the state one gets looted, then closing my account immediately and risking the 3-4 week process.

My only concern with that is that will the bank say, "Hey, look at this return money that can't be deposited. Now, who was supposed to go to? Oh, yes, she owes us money. Thank you, IRS!"

Hm. What do you guys think?

[discouraged]

When I had my paychecks direct deposited, they posted before 8:00 am. So, get up early, check your account and see if it is in there. If so, you should be in like Flynn. Same thing with the Friday. It should be there Friday morning, I would think.

Unless the bank has a huge red flag on your account you should be able to sneak them out, I would think (hope). I'm just not sure. When I was thinking bk, I took the money out of the bank I had the credit card with, a little at a time until it was all out except $5 (which somehow turned into $2.28 - don't know how they figured out that one). But, I had paid them before I took it out so not sure what happens with yours. Wish I had better answers for you.