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Setoff before bankruptcy

Question: 
We have been hearing rumors that our customer, ABC Corp., is going to file bankruptcy. They have a loan with us that is current and they have a deposit account. Can we use setoff to grab funds?
Answer: 

First, perform your analysis of whether the three conditions for setoff exist. If their loan is current, you’re going to have to have something different to hang your hat on, particularly if they did not pledge their deposit account as collateral. Even if the three conditions exist, be aware that the Trustee will scrutinize what you’ve done to determine whether it could be deemed a preferential transfer.

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Learn more about Mary Beth Guard’s webinar Can you use setoff?

First published on 06/21/2020

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