What Happens to My Credit Union Account When I File a Bankruptcy?
A credit union is a banking institution owned by the “members” or customers. In its simplest form, a credit union gets money from its customers and loans that money out to other customers. When a member files a bankruptcy and does not agree to fully pay their credit union debt, the credit union anticipates a loss and will generally deny all further banking privileges including direct deposit, use of ATM privileges, Electronic bill pay, and can even freeze and take money from your account to cover any possible loss. It is recommended that you withdraw your money from the credit union account and deposit it in a bank you do not owe money to.
One big difference between credit unions and other banks is that credit unions practice what’s called “cross-collateralization”. Cross-Collateralization is a term used when the collateral for one loan is also used as collateral for another loan. Basically, if you have a secured account with a credit union, such as a car loan, they hold a security interest in ALL loans that you may have at that credit union. In other words, your credit cards, overdraft line of credit, and any other personal loans with the credit union are secured by the vehicle.
What Are My Options?
In Chapter 7 bankruptcy, you have the option to reaffirm the debts, redeem the items, or surrender them. A reaffirmation agreement simply states that you are current with your payments, or can become current by the time of filing the bankruptcy and agree to keep making payments. If you stop paying, it will not be discharged in the bankruptcy and you can be held liable for the remaining balance of the loan. Redemption is another possibility where a car loan is concerned. Simply put, you pay the credit union what the car is worth, not what you owe. Surrendering the collateral, whether it is a home, boat, or car is always an option as well. The credit union gets their collateral back, and therefore, all other loans become unsecured and will be discharged in the bankruptcy. The collateral will be sold at auction and any deficiency remaining will be discharged.