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Banker's Options When Debtor Files for BankruptcyA bank must pause its efforts to collect a debt or foreclose on a property if the debtor files for bankruptcy. The automatic stay is one of the most powerful tools that a debtor has during bankruptcy. The stay expires after 30 days, but the debtor can file for an extension. As a bank, your priority when a client files for bankruptcy is to protect yourself and try to recuperate the debts owed to you. There are several actions you should consider.

Freezing Account

The automatic stay prevents you from withdrawing money from a bankruptcy filer’s account in order to offset debt. However, you can freeze your client's bank account in order to:

  • Protect the money from a bankruptcy trustee; or
  • Hold onto the money until you are able to offset it.

The trustee may order you to release the portion of the bank account that will be exempt from the bankruptcy. It may take weeks for the trustee to make this determination, which buys you time to pursue legal action.

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Bank of America Stuck in Debt Collection Dispute with ClientIllinois trial and appellate courts have been going back and forth on a debt collection case between Bank of America and a small business owner. Bank of America is suing the former owner of All About Drapes for the remaining value of an unpaid loan, plus interest and legal fees. The business owner counters that he was induced into signing the loan agreement because the bank falsely claimed that his previous line of credit was expiring. The trial court has twice ruled in favor of Bank of America in a summary judgment, but the appellate court overturned that decision each time.

Case Details

The business owner had originally created an open-ended line of credit with LaSalle Bank. He would borrow money to help him through the winter months — when his business was slow —  and paid the bank back at a two percent interest rate. Bank of America purchased LaSalle Bank in 2008, and the business owner began seeing an August 2009 maturity date on his bills. The owner explained to multiple employees at the bank that his line of credit did not have a maturity date. The bank insisted that:

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