Credit Unions and Bankruptcy
Did you know that having unsecured debt as well as secured debt with a credit union can cause potential problems when filing your bankruptcy case in Washington State? You see credit unions abide by a different set of rules than other standard banks have to abide by. In Washington State as well as several other states a credit union may set off the debt owed to them against any funds that are left in a bank account at the time of filing. They are able to do this because there is a special law on the books in Washington that allows them to do this. Therefore if you are somebody who has funds in a credit union bank account and you owe the credit union on a credit card or line of credit, you had best be advice to remove the funds from your bank account prior to filing a bankruptcy. There are some banks such as Wells Fargo that have been known to freeze bank accounts post filing, however they do not intercept the funds as far as I am aware as there is case law that prohibits this behavior. However, as a general rule I usually advise my clients to transfer funds to a different bank if they owe the same bank money just to be certain that nothing is going to happen.
Another issue that comes up with credit unions in bankruptcy is the issue of cross collaterilization. Many credit unions write into to their member agreements that the bank has the right to make an unsecured debt such as a credit card or line of credit, a secured debt in any other asset that you have financed with the bank such as a vehicle or a home. This can cause problems when somebody is trying to discharge an unsecured debt owed to a bank or try and have lower chapter 13 payments by not paying back the full amount of the unsecured debt in bankruptcy. If you have several debts with the same credit union you should check to see if they are cross collaterilized to best assess whether you will be able to discharge the unsecured debt owed to the credit union with out giving up your secured assets at the same time.
If you have additional questions call Symmes Law Group today at 206-682-7975 to schedule your free consultation.