Banks have changed over the past 30 years. Banks today earn a significant percentage of their profits from the "service" fees they charge. This is different from the good old days when banks focussed on what they were invented to do, which was to use our deposits to make loans and earn money on the interest (they still do that too, and in increasingly risky ways, but that's a subject for another article).
These days it's all about the fees. Economic research shows that banks made $32 billion from overdraft fees alone last year, up $400 million from 2011. Yep, that's billion with a "B". And most of the people I talk to who were charged these fees had no idea how fast they would pile up, even if they tried to call the bank to ask before incurring the charges. Congress is considering legislation to regulate these fees but given the snail's pace in Washington you can't wait for Congress to protect you.
It's not uncommon for folks to walk into my office with hundreds of dollars in overdraft fees on top of all of their other debts, sometimes from multiple banks. The good news is that those fees are almost always dischargeable.
But here's the rub: if you're not careful the fees can continue to accumulate after your bankruptcy is filed. And fees you incur after your case is filed -- even the day after -- can still be your responsibility. When you're dealing with a mountain of debt, including payday loans and overdraft charges, careful bank account planning is critical. Otherwise you can come out of bankruptcy with yet another big bill to pay.
An experienced bankruptcy attorney can help you plan for this and avoid the problem entirely. Your bank probably isn't making their fee-charging rules easy for you to understand. Many banks seem to make it confusing on purpose. But a good lawyer can help you sort all of that out before your case is filed.
People have enough on their plate when they're dealing with bankruptcy. The last thing they need is another bill.
Image credit: 401(k) 2013