Credit unions and traditional banks respond differently to bankruptcy filings by their members. After filing for bankruptcy, you can generally continue to do business with a conventional bank (such as opening new accounts and eventually filing for loans) but if you have debt with a credit union that is discharged under Chapter 7 or Chapter 13, they have the freedom to discontinue business with you entirely. If you’re considering filing for bankruptcy, and your checking account, car note, mortgage payment, and/or credit cards are held with a credit union, these are your bankruptcy options:
Keep Your Mortgage and Credit Card Debt
By keeping your mortgage and your credit card or personal loan, you can continue to bank with your credit union. While your other debts will be discharged, clear, honest communication with your credit union about a filing in process will allow you to continue banking without interruption–of course, this means that the debt you have with your credit union will not be discharged through bankruptcy. If you choose this option, you will need to settle on a reaffirmation agreement for your credit card and personal loan balance (and possibly your mortgage). Reaffirmation gives your creditor (in this case your credit union) the right to go after you if you fail to make payments after the bankruptcy.
Eliminate Credit Card Debt, but Keep Your Mortgage
If you exempt your mortgage from your bankruptcy filing, your credit union cannot foreclose on your home unless you fail to pay. Under this option, you will no longer be able to bank with your credit union–but you won’t lose your home. The credit union will not allow you to close your credit card and personal loan accounts completely if you still owe money, but you don’t want to place any new money in these accounts either. Once you stop paying, the credit union has the right to seize any funds.
Walk Away From All Your Debt
If you are completely overwhelmed by debt, the last option is to have all of your debts discharged. This can help you rebuild a better credit history in the long run, but in the short term, your credit union will be unwilling to do any future business with you. You will want to stop putting new money into these accounts before you file, as your credit union has the right to seize funds once you stop making payments.
Ultimately it’s important to make the choice that best suits your needs. Remember that losing relationships with one credit union does not mean that you are closing the door on all future financial opportunities.
If you would like an experienced bankruptcy attorney to help assess your individual situation, contact DeLuca & Associates at (702) 252-4673 to request a free consultation.