CHAPTER #16 How Does Filing Bankruptcy Affect My Credit Union?

Credit unions usually hold a car title or lien on your house, and any accounts at the credit union. That means that if you want to keep your car, you have to pay all credit union loans. This is called "cross-collateralization". Therefore, if you have a car loan and credit card, you may have to pay off both loans to get the car title, even if you file bankruptcy on the credit card and want to pay the car loan.

If you don’t pay a credit union, they don’t have to deal with you again, and may list your name as someone who has “caused a loss to the credit union”. Find out before filing if yours does that. Some do, some don’t. The company you work for, however, does not generally own the credit union. Credit unions are owned by the members. Each member must buy shares, and then is entitled, subject to an approved credit application, to borrow money from the credit union. Credit unions usually make loans at less interest than banks or finance companies.

Although getting a lower interest loan is a benefit, credit unions have several practices that can lead to financial trouble for a borrower. First, they want a payment on their loan every time the employee gets paid, and they usually want a larger monthly payment than other lenders. This gets the loan paid quicker, and results in less interest payments, but puts a greater burden on the borrower to pay the loan back quickly.

Since most people are borrowing from credit unions for necessities, they don't have any extra money, so the higher payment to the credit union often makes it difficult to make payments on other bills. Credit unions also like to get co-signers. If your co-signer is a relative or co-worker, you may want to repay the loan.

Another practice of credit unions is to take a security interest in pension fund distributions. In some states, and under the Federal ERISA law, that may be illegal. If there is such a security interest, the bankruptcy will not void it, unless you specifically provide your attorney with the documents showing that there is a security interest in your pension, and pay the attorney for the extra work necessary to avoid that security interest.

You will need special advice from Geraci Law regarding credit union loans. There is nothing wrong with agreeing that your credit union deduction can continue, and that the loan can be paid in full, but you should approach that issue as a business decision, not an emotional one. Geraci Law will often show you how to make it really easy to deal with your credit union debt.

Example: Mabel owes the credit union $4500. They have her shares of $550 for collateral, and they also made her get 3 co-signers before they would give her the loan. Her friend Jean owes the same credit union $5000. Jean has no savings in the credit union, and no co-signers.

The Geraci Law Chapter 7 or 13 Bankruptcy Solution: Mabel is going to let the credit union keep deducting after her Chapter 7. Although her personal liability will be wiped out, she will let them take the regular payment to protect the co-signers.

Jean will go to the credit union with her bankruptcy papers and tell them to stop deducting. This will have no effect on her job, and her paycheck will be a lot bigger.

In a Chapter 13, if Mabel wanted to pay the credit union, the credit union would be paid by the Chapter 13 trustee along with the rest of the creditors, usually. The creditor union must be treated the same as any other creditor, and can be either paid, or not paid. Because Mabel's Chapter 13 payment pays the co-signer loan ahead of unsecured creditors, any co-signer is protected, and no separate payroll deduction is permitted. That puts more money in Mabel's check.