Credit unions are allowed special circumstances in regards to a member filing a bankruptcy. If debt to a credit union is included in a Chapter 7 bankruptcy there is no hope for continuing current or future association with them or any other branch whatsoever. Eliminating debt during a bankruptcy with a bank does not mean you never get to bank with them again, but with a credit union all ties are cut and you are no longer a member with the ability to receive the benefits that membership entails. This means your banking relationship is over with all credit union branches or divisions. You can still keep your vehicle even though this financial relationship ends; however, if a credit card is included in the bankruptcy, that will end all banking relationships. There are three possible scenarios in this situation:
- You can keep your home mortgage and your credit card.
People that continue to pay on their mortgage and the credit card or personal loan can keep banking with the credit union. Before filing, you need to contact the credit union and inform them of the pending filing. The credit union will make note of the account and the bankruptcy will not interrupt any banking activities. This option requires a member to reaffirm the credit card/personal loan balance and may require the same for the mortgage. A reaffirmation agreement is a legally enforceable contract, which states you promise to repay all or a portion of a debt that may otherwise have been subject to discharge in your bankruptcy case. The lender can sue you for the amounts owed. Credit unions have a specific exemption in the bankruptcy code to allow you to reaffirm a loan with them after filing bankruptcy.
- Keep your mortgage, but eliminating your credit card.
This is another option and they can’t foreclose on the home as long as you are continuing to pay the loan payments. If this is the option you choose, you may no longer bank with the credit union. Before filing, you should stop putting money in the account. The credit union won’t let you close the account all the way if there is any money owed, but you don’t want to put any more money into that account either. They have the right to seize funds in the account once you stop paying on the credit card.
- Walking away from both, mortgage and your credit card.
The same happens as with #2 above. Do not put any money into any account with the credit union. As with the last option, your relationship with them is completely ended.
Most credit unions personalize banking, however this relationship may not be worth reaffirming loans over. It is important to weigh all the options to make an informed and financially sound decision for your future.
Please get in touch if you are still unsure how to manage your financial affairs prior to and during your bankruptcy filing. The experienced southern California bankruptcy attorneys at Westgate Law can assist you.