Callahan Clients, please log in for direct access to:
Learn What You're Missing
Upgrade Your Subscription
Thank you for your interest in reading the fantastic content we have on CreditUnions.com! However, the page you are trying to access is for subscribers-only. To learn more, select an option below.
All users must now log in to read, research, browse, and have fun on CreditUnions.com. Yes, we still offer freebies. And, yes, it’s worth the extra effort.
Print or PDF this article today because you won't have access to it later. Or, click here to learn how to get 24/7 access.
By LCS Financial Services Corporation
Nearly 200,000 credit union members filed for bankruptcy in 2013 alone, accounting for approximately $1 billion in charge-offs, according to Peer-to-Peer data from Callahan & Associates. This is a significant amount of debt that falls into a different and precarious collection process. Bankruptcy is one of the more common occurrences that can thwart a credit union’s recovery progress; however, if they act quickly, there are measures credit unions can take to maximize recovery.
The two most common types of consumer bankruptcy filings are Chapter 7 and Chapter 13. Chapter 7 is typically for consumers with little or no assets available for liquidation that wish to eliminate their unsecured debt through the filing process. Chapter 13 is for consumers that have assets they want to protect from liquidation. They might have equity in their home or property and need to restructure their debt to retain as many assets as possible through the bankruptcy process.
Chapter 7 traditionally serves as a method to eliminate unsecured debt with few borrowers actually losing any assets. Chapter 7 bankruptcy does not effectively eliminate debt attached to collateral and the creditor, in most cases, retains a pursuable lien post discharge.
Chapter 13 provides a repayment plan, normally administered through a trustee to be executed over a three- to five-year period. With Chapter 13, there are pre-petition payments that are made through the trustee and set up at the time of filing and disbursed in accordance with the confirmed plan. Post-petition payments can come straight to the creditor from the debtor and not through the trustee, depending on the jurisdiction of the bankruptcy filing. Credit unions want to be cognizant of lien strip motions that are proposed at the time of filing or shortly thereafter. If filed against a credit union’s collateral, make certain to work with an attorney to quickly assess whether it makes sense to contest.
If a member has filed a bankruptcy, all is not lost. There are a few things credit unions can do to secure the ability to recover their funds, but they must act quickly.
If credit unions don’t have the bankruptcy resources or expertise in-house to fulfill one or more of these stages, there are agencies that provide this type of expertise and monitoring services. Finding a reputable agency ensures a credit union doesn’t have to go it alone or construct an entire bankruptcy department for the occasional member filing.
Remember, although bankruptcy filings take patience and expertise, credit unions that correctly handle them can maximize recovery and reinvest the funds back into their community and their productive members.
This sponsored content article is provided to the credit union community for shared insights and knowledge from a recognized solutions provider in the industry. Please note that the views and opinions offered here do not reflect those of Callahan & Associates, and Callahan does not endorse vendors or the solutions they offer.
If you are interested in contributing an article on CreditUnions.com, please contact our Callahan Media team at firstname.lastname@example.org or 1-800-446-7453.
April 7, 2014
Submit your email address to receive daily industry updates and web-only features.
P: (800) 446-7453 | F: (800) 878-4712
1001 Connecticut Ave. NW Suite 1001
Washington, DC 20036