Friday, October 26, 2012

Credit Union Accounts and Bankruptcy - What to Watch Out For

These days many people prefer to do their banking with Credit Unions rather than a traditional bank. They feel that they can get better treatment with a smaller, less corporate feel.  In general, credit unions are wonderful, but you need to be careful if you have a credit union account and are planning to file bankruptcy.

Many of my clients who have a credit union account also have debt with that credit union. They may have an auto loan, line of credit, credit card, or other personal loan withe the credit union.  In this situation when a person files bankruptcy the credit union will place an "administrative freeze" on the account as soon as they receive notice of the bankruptcy filing.  They do this to protect their interest as much as they can.  This freeze can cause big problems for the debtor because they won't be able to use their debit cards, get cash out, or do any general bankruptcy while the accounts are frozen.

If the credit union is going to take a loss in the bankruptcy they will typically terminate the account all together.  If the debtor had funds in the accounts when they were frozen, the credit union may offset the funds (take the money to apply to the debt). This means, the debtor may lose that money altogether.

It is ALWAYS advisable to bank at a bank or credit union where you don't have any debt. That way, your bank or credit union won't even get notice of your filing and you don't run the risk of your money being frozen and tied up.

If you have a Credit Union that you use for you banking and don't have debt with them, then there is no reason to change accounts. However, if your credit union holds any of your debt, and you plan to file bankruptcy you should start the process of getting a new, fresh account at another institution.

If you are looking to get a new credit union account in Oregon, you can start looking here: http://www.asmarterchoice.org/

For more information about bankruptcy feel free to visit our website.