Bank debt includes unsecured loans (like personal loans and credit cards) and secured loans. A secured loan has collateral, which is property you offer at the start of the loan. The lender can take the collateral after you default and then they can sell it. If the sale does not cover what you owe, you may still owe a balance. This is called a deficiency.

What makes bank debt different is the right of setoff. If you owe Bank A and you also keep your checking or savings at Bank A, the bank may take money from your account to pay the past-due loan if your contracts allow it. Keeping your money in a different bank can lower this risk.

Some credit unions use “cross-collateralization.” This means your car might secure your credit-union credit card or personal loan too. Make sure you understand how your loan works and call your bank with any questions.

Your options

• Before a lawsuit, you should protect your cash. If you are behind with Bank A, you should consider moving new deposits to Bank B to reduce your risk.
• Before a lawsuit, you should communicate in writing. You should ask for hardship options and keep notes. If your loan is secured, you should learn about repossession, sale rules, and deficiencies.
• If you are sued, you should not ignore court papers. You may have defenses about the amount, the proof, licensing, or the time limit to sue, which is normally 10 years for bank loans.
• After judgment, you should act fast. You can claim exemptions, respond to wage deductions or bank citations, and ask for an installment plan.

Learn more

• Illinois Legal Aid Online (ILAO): Trouble paying bills and Responding to debt collectors