What You Need to Know About Credit Unions and Filing Bankruptcy in MN

Credit Unions operate differently than banks in many aspects, and there are a few big differences in how credit unions operate within the bankruptcy world.

Your Credit Union Might Close Your Bank Account

If you bank at a credit union and owe the credit union money (in the form of a line of credit, credit card, or overdraft protection account) and you file bankruptcy, the credit union will close your bank account.

Credit Unions have the right to deny services after they take a loss in a bankruptcy filing, and therefore I very commonly see credit union accounts get closed soon after a bankruptcy is filed. I encourage clients to switch over to a bank or a credit union they don’t owe money to, prior to the bankruptcy filing.

Beware of Signing a Reaffirmation Agreement in MN

If you have an auto loan through a credit union, it is very common that the credit union will send a reaffirmation agreement shortly after receiving the bankruptcy notice. The reaffirmation agreement is basically like signing your auto loan contract all over again.

Many credit unions require a reaffirmation agreement to be signed or they will repossess the vehicle, even if payments are current. Reaffirmation agreements can very often be a bad idea. This is especially true if the car is underwater, not in good condition, or is cross collateralized with other debt that is owed to the credit union (see below).

Watch Out for Cross Collateralized Loans at Credit Unions

If you have an auto loan and any other unsecured debt to the credit union, like a credit card, all your debt is technically wrapped up into one loan through a cross collateralization agreement. So if you stop paying on the credit card, you are still on the hook for that debt if you want to keep your vehicle.

Very often reaffirmation agreements will not only show the vehicle loan but the credit card, line of credit etc. This can easily put someone underwater on their vehicle, and therefore you have to be very careful when reading over the reaffirmation agreement.

Most often signing a reaffirmation agreements are not in the client’s best interest, and walking away from the vehicle, and all the underlying debt to the credit union is the best option.

CALL NOW FOR A FREE STRATEGY SESSION FROM A MN BANKRUPTCY LAWYER AT KAIN & SCOTT

All of this is to say dealing with credit unions in a bankruptcy can be tricky. You want to make sure you have an attorney experienced in working with credit unions. Please don’t hesitate to reach out to Kain and Scott at 800-551-3292 or www.kainscott.com for a free consultation on if bankruptcy is right for you.