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Bank can close savings account that has sat idle

Either the funds were eaten up by account fees or the account was declared abandoned. Also, filing for bankruptcy may not be the best option to retire credit card debt, and what to do with a 401(k) account when you change jobs.

January 30, 2011|Liz Weston | Money Talk

Dear Liz: A friend of mine had a savings account for many years but didn't put any money in it for some time. When he went to take money out, the bank had taken the money because he hadn't used it enough. Are banks allowed to close an account and take the money if the account hasn't been used in a while without contacting you? If so, how long do you have before the bank can take the money?

Answer: One of two things happened here. Either your friend's funds were eaten up by account fees, or the account was declared abandoned and whatever money was left was turned over to his state's unclaimed property office.

The amount of time that has to pass before an account is declared abandoned varies by state and can be as little as one year. Some states expect banks and other financial institutions to make some effort to track down accountholders. In other states, little or no effort is required. In any case, your friend can use the website of the National Assn. of Unclaimed Property Administrators at http://www.unclaimed.org to see if his lost account is being held by his state. While he's there, he may turn up other unclaimed property that belongs to him, since these offices also collect utility deposits, insurance proceeds, refunds and the contents of safe deposit boxes, among other property.

Dear Liz: I am 70 and still working hard to retire attorney fees from my divorce while paying my daughter's college tuition. I met with a bankruptcy attorney and got not-very-encouraging news. The attorney told me it would cost $2,000 to file for bankruptcy and there was no guarantee that my $36,000 in credit card debt would be retired. Instead, I might have to repay the debt over two to five years. He left me with the impression that there would be no debt relief, just a delay with a set repayment schedule. I have made no decision about how I will proceed, but the credit card payments are killing me. Can you advise?

Answer: Not everyone can qualify for a Chapter 7 liquidation bankruptcy, which typically erases credit card debt. If your income is above the median for your area, or you're trying to protect assets that would be taken in a Chapter 7 case, you could wind up in Chapter 13 bankruptcy, which requires a repayment plan.

The best way out of your situation may be to buckle down and pay off the debt as quickly as you can, even if it means your daughter's taking a sabbatical from school for a while. You also could sell or cash in some non-retirement assets, if you have them, to pay off your debt.

If you really can't afford these bills, you could contact a legitimate credit counselor such as one affiliated with the National Foundation for Credit Counseling at http://www.nfcc.org to see if you could swing a debt management plan that would allow you to pay off these bills at a lower interest rate.

If that won't work, another option is to try to negotiate a settlement with your creditors. Settlements trash your credit scores, and your creditors could sue you if you stop paying your bills, so this solution isn't for the faint of heart. You may want to return to that attorney and ask for guidance before you take such a drastic step.

Dear Liz: I recently changed jobs and wonder what I should do with my old 401(k) account. Should I roll it into an IRA or transfer it to my new employer's 401(k) plan? Everything I read says an IRA is better because you have more choice in picking investments, but I'm not sure where I should set up the new account. Does it matter?

Answer: You probably would have more investing choices with an IRA, but you might also wind up paying more. A good, large-company 401(k) plan often offers access to institutional funds that charge less (sometimes much less) than what a retail investor would pay for a similar investment through an IRA. If your new employer's plan is a good one, transferring the money there is often the simplest and most cost-effective solution. Or you may be able to leave the money where it is, if you like the plan. Only if neither option is palatable, or if you're convinced that you can find better, lower-cost options on your own, does an IRA rollover become the clear best choice.

Liz Weston is the author of the upcoming book "The 10 Commandments of Money: Survive and Thrive in the New Economy." Questions for possible inclusion in her column may be sent to 3940 Laurel Canyon, No. 238, Studio City, CA 91604 or via the "Contact Liz" form at asklizweston.com. Distributed by No More Red Inc.

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