Beware of "Unsecured" Credit Union Loans

I have been speaking with a lot of potential clients who have taken out personal loans from credit unions, believing those loans to be unsecured when, in fact, they are secured by personal property. This can become very problematic in filing a bankruptcy.

These loans often seem attractive at the time because they allow people in a tight spot to consolidate several credit cards at a lower interest rate. However, do you need to be very careful when taking out any of these loans. Oftentimes, and especially when dealing with credit unions, it turns out these loans are secured by your personal property. That means if you fall behind or default on the loan, the credit union may be able to take your car or other personal property.

I have had a lot of potential clients who tell me that they are sure the loan is unsecured, until I have them get me a copy, and upon reading the loan document, see that it is secured by property. Clearview Federal Credit Union in particular will often secure a personal loan against a car loan that you have already taken out with them, and they will even secure personal loans with FUTURE car loans you haven’t even taken out!

These sneakily secured loans are a problem in bankruptcy, because unlike unsecured loans, they are not wiped out unless you are willing to turn in the secured property. For some clients this may be a car that doesn’t run and it isn’t a big deal. But I have had other clients with cars and campers and other personal property that they did not want to surrender. So, the loan ends up surviving the bankruptcy.

Be very careful in reading what you sign when you take out ANY loan, especially looking to see if any of your property is being used as a security against the debt. Regular banks, and not just credit unions, are capable of doing this as well, though most of what I see is either credit unions , or certain companies, like Mariner or Lendmark Financial.

Call us at 412-414-9366. If you want to discuss whether or not your personal loans will be discharged under bankruptcy. I would be happy to set up a free consultation to discuss your situation!

Credit Union Loans and Bankruptcy

Credit union loans frequently pop up when reviewing the debts of my clients. These loans can take several forms. Sometimes cars are financed through credit unions. Home equity loans can also be obtained through credit unions. Finally, unsecured bank loans, often used to consolidate other loans, are sometimes owed to credit unions. In any case, they can all be accounted for through bankruptcy. 

Credit unions are often local institutions, in the business of taking savings and issuing loans, and each differs in practice and procedure. Given their local nature, they sometimes lack sophistication in dealing with bankruptcy clients. This means they occasionally will fail to file bankruptcy claims required in Chapter 13 bankruptcy, or they will continue to contact bankruptcy filers after the case is filed. Regardless, at the end of the day, dealing with a credit union will be no different that dealing with any other creditor.

My clients sometimes feel awkward including their credit union because of the local, personal nature of the business. They know the tellers and managers at their credit union, and they have possibly done business there for years. However, these debts should, and must, be included in your bankruptcy. All debts must be treated equally, so if you include credit cards and other unsecured debts, you must also include credit union debts. So, you cannot pay back your credit union to the detriment of your other creditors.

Secured debts such as car loans and home equity loans obtained through credit unions are also treated as normal under bankruptcy law. If they are secured, they must be paid through the bankruptcy, generally under the contract terms. Once again, credit unions may ask for different information regarding the bankruptcy filing, but the results will be the same in the end. You car loan or home equity loan through the credit union will remain unaffected. 

Having a debt with a credit union can sometimes leave my clients feeling uncomfortable. But, keep in mind that I will be the one dealing with them, and that at the end of the day, they are just a normal creditor. After the bankruptcy is filed, the relationship can be re-established.

If you have a debt with your credit union and are considering bankruptcy, contact us to discuss your options.