Using a credit union is generally a positive experience. They were established as an alternative to traditional banks, serving their community with more affordable options. Credit unions offer lower interest rates along with membership status to everyone they serve. Being a member comes with the privilege of being a part of the one-person-one-vote system of electing board members, and more popularly, the ability to take a loan from the organization.
The perks of being a part of a credit union extend to the familiar nature of the representatives who so easily can assume the role of a trusted acquaintance, guiding you to the most cost-effective options available. However, when filing bankruptcy, credit union policies are most reluctant to forgive you of debts.
Cross Collateralization Agreements
When borrowing money from a credit union, measurements are taken to secure the loan against any line of credit you’ve previously obtained. With each checking account, savings account, credit card, or loan agreement, there is a stipulation stating that all your accounts with the credit union serves as collateral for each other. This clause is similar to how your car serves as collateral securing your traditional auto loan until the financing institution receives payment in full.
When a borrower doesn’t repay his or her loan, the lender moves to repossess the vehicle. When you take an auto loan with a credit union, the credit union can take the funds and late fees from any other account or freeze all accounts with the organization.
Credit Unions and Bankruptcy
Many credit card and other debts most often classified as “unsecured” are normally claimed to be “secured” with credit unions. When filing bankruptcy, secured debts take priority over unsecured debts and may need to be “reaffirmed.” When reaffirming debts related to collateral property, you may be required to repay the debt to reaffirm your property, making you responsible for the debt as if you had never filed bankruptcy at all.
Since the credit union has each of your accounts with them as collateral, it is advised to open a separate account before filing for bankruptcy. Having a different banking institution will allow you to have access to your funds without interruption if the credit union should freeze your accounts.
Contact a Louisiana Bankruptcy Attorney Before You File
Filing Chapter 7 or Chapter 13 bankruptcy is no easy task, especially when the credit union that you were long friends with extends your process. The best way to go forward with filing bankruptcy when you owe a credit union is to gain legal counsel. The Louisiana bankruptcy attorneys at E. Orum Young have helped clients resolve their financial struggles for over 35 years. We have conducted the most bankruptcies in Northeast Louisiana, with over 20,000 cases under our belt. Contact us today at 318-450-3192 to complete your free case review.