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111 Waterloo Street, Suite 310
London, ON N6B 2M4

BANKS AND THE RIGHT OF OFFSET (OR “SET OFF”)

September 5, 2017

Talk to your trustee about the treatment of your bank account before you file a bankruptcy or proposal.

In Ontario the Limitation Act prevents legal action being taken against you for debts, except mortgage debts, that are more than two years past payment. In other words if you have ceased making payments for a period of two years or more and the creditor did not already sue you they will be unable to do so. They will have become what we refer to as “statute barred” and cannot rely on a statutory remedy, including bankruptcy, to collect the obligation.

However, and this is very important, the creditor can still resort to non-statutory means to collect the debt. Let’s say you had an overdraft account at the bank and had abandoned the account for a period of nine years with a relatively small balance of $700. The bank never sold or traded the account and the amount was too small to spend more money on a small claims court action.

After nine years, you had completely forgotten about the outstanding balance and opened a new account at the bank. You arranged for your paycheque to be deposited into the account only to find that the bank took it – exercising its right of offset.  They did not resort to a legal mechanism but rather a contractual one between you and them.  Keep in mind too that the original $700 debt may now be as high as $4,500 assuming interest continues accruing at 21%

Our office has seen exactly this exact scenario played out.  The bank had no sympathy for the plight of debtor who was earning a subsistence level of income, far less than the LICO (Low Income Cut Off).  Also of note is the fact that the bank was not willing to negotiate any kind of informal settlement on the outstanding balance.

you had completely forgotten about the outstanding balance and opened a new account at the bank. You arranged for your paycheque to be deposited into the account only to find that the bank took it – exercising its right of offset. They did not resort to a legal mechanism but rather a contractual one between you and them.

We have seen exactly this scenario played out during the past month. The bank had no sympathy for the plight of debtor who was earning less than the poverty line. We have also noticed an upswing in banks trying to pursue bankrupts’ for “post-bankruptcy” use of their accounts – when the banks themselves have been applying charges to the otherwise dormant account.

The rub is that the bank will not allow you to close the account when it is in arrears and they will assign you an overdraft where there was none before in a gambit to accrue NSF fees and other charges. However, the debt they have, apparently purposefully, accrued appears to be one that is dischargeable in a bankruptcy proceeding – we have seen one such situation that may require testing in the courts. you had completely forgotten about the outstanding balance and opened a new account at the bank. You arranged for your paycheque to be deposited into the account only to find that the bank took it – exercising its right of offset. They did not resort to a legal mechanism but rather a contractual one between you and them.

We have seen exactly this scenario played out during the past month. The bank had no sympathy for the plight of debtor who was earning less than the poverty line. We have also noticed an upswing in banks trying to pursue bankrupts’ for “post-bankruptcy” use of their accounts – when the banks themselves have been applying charges to the otherwise dormant account.

The rub is that the bank will not allow you to close the account when it is in arrears and they will assign you an overdraft where there was none before in a gambit to accrue NSF fees and other charges. However, the debt they have, apparently purposefully, accrued appears to be one that is dischargeable in a bankruptcy proceeding – we have seen one such situation that may require testing in the courts.