You can settle public debts like taxes, student loans, or credit card balances using a powerful tool called an Electronic Funds Transfer (EFT) setoff, but it requires a specific process using a closed bank account. Follow these steps carefully to take control of your finances and outsmart the system.What Is a Closed Account?A “closed account” is a personal checking account you’ve opened and then closed, meaning no further deposits or withdrawals can be made. However, it remains open for “setoff” transactions—private adjustments to settle debts—unlike a fully finalized account (Black’s Law Dictionary, 6th Edition). This distinction is key: the account operates on the private side of the bank’s ledger, not the public side used for regular checks.Important: Only use a closed account for EFT setoff transactions. Using an open account or treating the EFT as a check (ACH transaction) is illegal and will be reversed.Why Use an EFT Setoff?An EFT setoff allows you to settle public debts (e.g., taxes, student loans, car loans, credit cards, child support) by leveraging your status as the principal of your financial estate. It’s not recommended for ongoing bills like utilities or cell phones. The secret to success lies in following the process precisely and standing firm with follow-up actions.Step-by-Step Guide to EFT SetoffFollow these steps to execute an EFT setoff correctly:
- Open and Close a Personal Checking Account:
- Choose a large commercial bank (not a credit union or your everyday bank).
- Do not use the bank where your debt is held to avoid account closures.
- Open a personal checking account, then close it to create a “closed account” for setoff purposes.
- Prepare the EFT Instrument:
- Write the EFT on a check from the closed account, clearly marking it as an “EFT Transaction Only” (not an ACH check).
- Use fraud-proof ink (available online) to avoid legal issues.
- Specify the debt you’re settling (e.g., loan number, tax bill).
- Send the EFT to the Creditor:
- Mail the EFT via the U.S. Post Office (not private carriers like UPS) with a postage stamp autographed at a 45-degree angle in purple, blue, or gold ink to invoke Universal Postal Union (UPU) authority, as outlined in our prior resources.
- Include a cover letter stating your intent to settle the debt via setoff.
- Follow Up Persistently:
- If the creditor accepts the EFT, the debt is settled.
- If they refuse or don’t respond, their refusal counts as acceptance under the Uniform Commercial Code (UCC). Send a follow-up letter demanding confirmation of the setoff, referencing UCC rules.
- Use our Secured Party Creditor Process Pack for sample follow-up letters tailored to different situations.
- Avoid Verbal Communication:
- Never discuss the EFT with creditors by phone or in person. Respond only in writing, stating, “I do not contract over the phone,” if harassed by collectors.
- Stay Disciplined: Don’t ask your bank about this process—it’s a private transaction they may not understand or support.
- Use the Right Bank: Avoid the bank tied to your debt or daily banking to protect your active accounts.
- Be Persistent: Creditors may bluff or delay. Stand firm with follow-up letters to enforce your rights.
- Invoke UPU Authority: Use autographed postage stamps on all documents to place them under international commercial law, as explained in our Commercial Lien Manual.