Many of my clients don’t want to give up their credit union accounts when they file for bankruptcy. While both banks and credit unions have a right to set-off any assets in bank accounts against outstanding debts to the lending institution. In addition, Credit Unions include cross-collateralization provisions in most of their loans, including credit card applications. While Credit Cards are defined as “Unsecured Debt” under Michigan Statute, Credit Unions are exempt from the law and can secure your credit card debt with other assets, such as your car. Accordingly, if your Credit Union loaned you money for your car, it may have the right to take the vehicle, even after you paid off the car loan, if you owed other money to the Credit Union at the time of filing. To protect yourself, make sure you have the Credit Union sign off on the title once you pay off the car loan. If you can’t afford to pay the loan off prior to filing for bankruptcy, and you have other debts owing to the credit union, you may wish to refinance, even at a higher rate, to protect your vehicle from attachment and sale after filing.
