Credit Unions
If you are a member of a credit union and you have debt with that credit union, you need to be aware of certain circumstances as they relate to your bankruptcy case. Credit unions operate under different rules than ordinary banks. When you place money in a credit union account it is known as a share account. When your credit union becomes your lender, it usually contains language within the loan whereby your share account and other collateral can be secured. This means that if you do not pay back the loan the credit union has a right to offset whatever funds are in your share account to satisfy the debt. Additionally, if you have a vehicle financed through a credit union and you also have a credit card with that credit union, the odds are that the vehicle financing is going to contain language that cross-collateralizes the loan. This is very important because if you do not pay back the credit card debt or agree to reaffirm the credit card debt, you’ll lose the ability to reaffirm the debt solely on the auto.
Take Precautions
For the above stated reasons and more, if you have a share account at a credit union and if you have debt financed through the credit union, you are going to want to take certain precautions before your bankruptcy case is actually filed with the clerk of the United States Bankruptcy Court. The first thing that you are going to want to do is to remove whatever funds you have on account with that credit union prior to filing. Credit unions have offset rights which will allow them to take whatever is in your share account to satisfy an outstanding debt with the credit union. You may have to surrender whatever rights you have as a member in the credit union after your bankruptcy case is filed. Even on unsecured debt such as credit cards, if you do not agree to repay the credit union and you suffer them a loss, they will terminate your membership privileges. In some cases, the debtor doesn’t care if they lose their credit union membership. In some cases the debtor is willing to surrender the vehicle that may be cross-collateralized with a Visa card to the credit union. In other cases, debtors truly want to keep the credit union account and are willing to reaffirm on unsecured debt in order to do so.
Surviving Without Credit Unions
My advice to clients and potential clients is simple. You can survive without the credit union. Thus, you should move whatever funds you have on account with the credit union prior to filing for bankruptcy. If your vehicle is cross-collateralized with unsecured credit card debt, consider giving the vehicle back in exchange for a fresh start. There are many lenders who will do open bankruptcy financing or otherwise finance you on a vehicle after your case is filed. Whatever reason caused you to start with a credit union, you may not need them anymore. You may be able to go with traditional financing and traditional banking in the future.
Reaffirming With Credit Unions
It is one thing to know what you’re getting into when you file a bankruptcy. It is another thing to be blindsided by the fact that your credit card debt and your vehicle may be linked as well as linking your share account. By having good advice from a bankruptcy attorney who is aware of credit unions and their rules, you can have the upper hand before you file. One other important piece of information about credit unions. When it comes to reaffirming the debt, the credit unions have carved out a little niche in the law whereby they don’t have to worry about a presumption of undue hardship upon the debtor by agreeing to reaffirm the debt. This is a completely unjust area carved out in the bankruptcy code. Obviously the credit unions have the right lobbyists working on their behalf. In traditional banking or financing of vehicles, debtors have to submit to the court’s jurisdiction for them to determine whether or not the signing of the reaffirmation agreement presents an undue hardship upon the debtor. If the court does not approve the reaffirmation agreement, the debtor loses the debt and loses the vehicle. With regard to credit unions, the credit unions are not subject to that same court scrutiny. Even though the bankruptcy laws have consumer protection elements to it, it doesn’t apply to credit unions when it comes to reaffirming debts.
For more information on your rights with regard to credit unions and your bankruptcy, contact my office at 847-520-8100. The advice you get before you actually file can save yourself a lot of money, time, and aggravation.
