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Credit Unions and Cross Collateralization

Posted on May 21, 2012 in Bankruptcy

Credit unions are great to work with…unless you’re in bankruptcy. This is because of something known as cross collateralization. Let’s say you are a member of a credit union with a checking account, credit card and car loan. When you signed up for the loan and credit card you probably signed something tying all of those items together. Put another way, if you don’t pay your car loan the bank can freeze, or possibly even take, the money in your checking account. This cross collateralization can cause difficulties in bankruptcy, particularly the process known as “reaffirmation.”

One option bankruptcy filers have is to “reaffirm” a debt. “Reaffirming” a debt simply means continuing to pay the debt as if you didn’t file for bankruptcy.  Those who use this option are almost borrowers on a car loan who need the car to carry on with their jobs and life. To get a debt reaffirmed, both the person who declared bankruptcy and the company that loaned the money must voluntarily agree. When credit unions use cross collateralization, problems can arise for people in bankruptcy.

When a person wants to reaffirm a car loan, that is cross collateralized with a credit card or other loan, the credit union will insist on reaffirming the credit card before it will agree to reaffirm the car loan. This causes obvious difficulties. The person in bankruptcy wants to get rid of debt, like the credit card, in order to move on with their life, BUT that person needs her or his car in order to survive. This problem is one of difficulties consumers have to navigate in the complex bankruptcy system.

Do you have a car loan or mortgage loan through a credit union?  If you’re considering filing for bankruptcy, please contact us to discuss how we might be able to help you keep your  loan while eliminating debt through Chapter 7.

This post was authored by Nicholas Strom, Lakelaw associate


Updated June 22, 2012:

Please find the following websites with links to other bankruptcy topics beginning with C:

Cancellation of Debt Income
By Vermont-New Hampshire Bankruptcy Lawyer Michelle Kainen

By San Francisco Bankruptcy Attorney Jeena Cho

Chapter 7
By Marin County Bankruptcy Attorney Catherine Eranthe

Chapter Choice
By Ormond Beach, Florida Bankruptcy Attorney Lewis Roberts

Chapter of Relief
By Southgate, MI Bankruptcy Attorney Christopher McAvoy

Cheap Bankruptcy
By Houston Bankruptcy Attorneys Busby & Associates

Check Your Bills, Bank Account Statements and Paystubs
By Columbus, Ohio Bankruptcy Attorney Athena Inembolidis

By St. Louis, Missouri Bankruptcy Attorney Nancy Martin

Competence and Compassion
By Philadelphia Suburban Bankruptcy Lawyer Chris Carr

By Los Angeles Bankruptcy Law Monitor, Christine A. Wilton

By Omaha and Lincoln, Nebraska Bankruptcy Attorney Ryan D. Caldwell

By Cleveland Area Bankruptcy lawyer Bill Balena

By Miami bankruptcy Attorney Dorota Trzeciecka

By Northern California Bankruptcy Lawyer Cathy Moran

By Colorado Springs Bankruptcy Attorney Bob Doig

By Oahu Bankruptcy Attorney Stuart Ing

By Metro Richmond Consumer and Bankruptcy Attorney Mitchell Goldstein

Credit Card Creep
By Pittsburgh Bankruptcy Attorney Shawn Wright

Credit Card Tips
By Wisconsin Bankruptcy Lawyer Bret Nason

Credit counseling
By Chicago Bankruptcy Attorney Kyle A. Lindsey

Credit counseling
By Los Angeles Bankruptcy Blog, Mark J. Markus

Credit counseling
By Daniel J. Winter, Chicago Bankruptcy Attorney

Credit Counseling
By Birmingham Bankruptcy Attorney Elizabeth Johnson

By New York Bankruptcy Lawyer, Jay S. Fleischman

By St. Clair Shores MI Bankruptcy Attorney

By Livonia, Michigan Bankruptcy Attorney Peter Behrmann

Creditors Meeting
By Philadelphia  Bankruptcy Lawyer Raymond Kempinski


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