If you have several accounts with a bank, is it legal for them to decide which account a payment is applied to?

My bank which my wife and I left no longer bank with repossessed my truck. We were current with my truck payment when we stopped doing business with them. We left the bank due to financial hardship and fell behind on our credit card and a small personal loan. The took a $300 payment that was sent in around the 15th and applied the payment to the personal account paying it off. This in turn through my truck into arrears. They came and picked up my truck last night while I was sleeping. I called the bank and they advised that they were within their full legal right to do what they did and refused to post the money to my auto loan and return my vehicle. I rely on on my truck to get to work so I can keep my wife and 5 year-old daughter with food in their belly and a roof over their head. Is it legal for them to do this to purposely throw my auto into default so that they could take it and then bully me?

Asked on July 28, 2010 under Bankruptcy Law, North Carolina

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

It may be legal, unfortunately--a great deal depends on the various loan and credit agreements. As a general matter, if a creditor is owed for multiple reasons, debts, or accounts, the creditor has considerable discretion to apply a payment to one or another; and in particular, if loan, etc. documentation gives them this right, it is almost certain they can do this. Debtors who are in arrears or default do not have the right to determine how payments are applied for their benefit. Since the truck secured a loan, it makes sense for the creditor to have applied the amount to the unsecured loans first, then take the truck. You can and should consult with an attorney on the matter (if you can't afford one, try legal aid or legal services) and bring with you all your loan, etc. paperwork; be prepared that there is a very good chance that the bank did is legal.


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