With Tax Season in full swing, we are running into some issues with Charged Off Accounts. Our charged off accounts are sent to an attorney's office for collections. We do not know the pay off balance for these charged off accounts as they may have incurred fees since they were charged off by the bank. We have customers (or former customers) who are directing their Tax Refunds into the charged off account. They are then coming to the bank and wanting the money. The problem is we don't know how much to give them. We would like to cover the full charge off amount and then give them the remaining amount, but we are having some time delay between the customer coming in and getting in touch with the attorneys office for the pay off amount. I know I'm thinking Reg CC and funds availability is an issue here, but what time frames are we dealing with and does the account being charged off change anything. Also, do we have any issues with accepting these ACH tax refunds into charged off accounts?

Thanks for your advice in advance!

The account is closed. You are required by NACHA to reject the transaction to any closed account and return to the transaction to the IRS.

A charged off account is a closed account for our records, I guess it depends on your state law. Your pre-closing letters/pay up or else letters prior to charge-off should tell them they need to clear up the discrepancy within the next 30 days or the account will be closed and charged off and any electronic credits on the account will be returned after that date. No funds will be accepted after that date and they should make other arrangements.

FWIW: we would have people that would walk off from accounts, and then their federal benefits or tax return would hit (sometimes months after charging the account off) and we didn't want to have to cut them a check. Bouncing it was just much simpler, and really, we sent you week after week of please take care of this notices -- and you kept writing checks -- why are you telling someone to send your money here?

Just to harmonize with the previous thoughts -- a closed account is a closed account. The contract for the deposit account is no longer in effect. You don't have an account to receive the direct deposit; you have no right to set off against the direct deposit. Send it back. The IRS will have Treasury send them a check.

I believe in resurrection, but not in the context of a bank account. Send it back.