Legal Question in Credit and Debt Law in Kentucky
debt collection setoff
does the bank that held my mortgage and home equity LOC have the right of setoff (debiting/emptying my checking account) after forclosure? They already auctioned the house and charged off the LOC. Being that the bank took the collateral for the loan, this seems unfair to me. The LOC dept did not, evidently, receive any of the sales proceeds. After this, we are starting bankruptcy proceedings.
1 Answer from Attorneys
Re: debt collection setoff
Unfortunately, there is a common law right of set-off which generally allows banks (and others) to seize assets in their possession to pay debts owed to them. After the foreclosure sale, you (apparently) still owed the bank on a "deficiency judgment." After selling the collateral there was still an amount owed which the sale of the collateral did not pay, so the bank set -off their debt to you (the money in your account) against the remaining balance on the judgment.
Such set-offs are why I tell my potential bankruptcy clients to take all the money out of any accounts they have with banks they owe money.
Sorry to confirm the bad news ....
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