Automatic Stay on Chapter 7

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Question:

We have been given notice of Chapter 7 bankruptcy on a small unsecured consumer loan that was 12 days late as of the date of notice. This borrower also has a checking account at our bank. Once notice is given, are we stayed from taking action on the bank's right of offset on this deposit account?

Answer:

In my experience, your best course of action is to speak with counsel. You may be able to hold the funds and claim them as collateral. To setoff at this point may be deemed preferential treatment. The Trustee may have to approve your actions to actually take the funds.

First published on BankersOnline.com 6/3/02