BANKRUPTCY- CREDIT UNIONS-CROSS-COLLATERALIZATION

One of the problems that debtors run into when filing bankruptcy is that creditors who have liens on your property have a much better chance to get your property or to get paid if you want to keep your property.   That is why creditors want collateral.  With collateral, a creditor will often charge a lower interest rate than if there was no collateral.
The dirty secret of Credit Union accounts is cross-collateralization. What does this mean to you and how did this happen?
How it happens is simple.  When you are opening your entire account at your friendly Credit Union, you sign a whole lot of papers.  One of the papers that you sign as a part of your account is that if you borrow money from the credit union in the future that you agree that any collateral you pledge as security for a loan, the collateral becomes for all of your loans.
HUH!!! I will put that in plain language.  You borrow money to buy a car and finance it with your credit union.  You have an unsecured account also with them and are probably paying a higher interest rate because you did not pledge any collateral, you thought.  You have trouble paying your loans with the credit union and finally you pay off your car loan.  You want to get your title to the car and go in to get it.  What happens?
Maybe the credit union will give you the title or it may say, no.  The choice is not yours and you are paying the higher rate for unsecured credit.  That is not fair you say.  The credit union says tough luck.  The title will not be released until the other loan is paid in full also.
What can you do about it?  Absolutely nothing.  The credit union knows it is losing you as a customer when it does this, but, it is making a business decision as to how to best minimize its losses.  The only problem is that friendly person who helped you establish your account with, your credit union, either did not tell you, did not show you or did not explain this to you.   My clients never understand that they have signed documents that allow this action to be taken.
Your credit union.  I have never seen anyone who had this done to them feel like it was their credit union.  Since they are usually getting out of the credit union or being forced out, it is not, your credit union, for much longer anyway.  You may want to check out the salaries of some of the higher ups at, your credit union, and you will quickly realize that credit unions are now just like banks or savings and loans.

About Nathan Davis, Esquire

Born in Charleston, South Carolina, Nathan Davis has been practicing law for many years. Mr. Davis has a wide variety of experiences having practiced domestic relations, criminal law, social security law having also practiced collection law in the past. This knowledge is helpful when someone needs to restart their financial life. The practice is now primarily bankruptcy and debtor representation work, but, Mr. Davis continues to also practice real estate law, trusts and estates and a general litigation practice. I believe that the most important part of representation is trying to leave you better off when the case is finished than when you started. Although I will do as my client directs, I will always tell you if I think that you are making a mistake. Bankruptcy is about a "fresh start". If you do not make changes in what you are doing, you will be doing what you are doing now in the future. There is no shame in bankruptcy or other steps that you may take to start your life over. Too often, people worry more about things than about themselves, their family or their future.
This entry was posted in Credit Unions. Bookmark the permalink.

One Response to BANKRUPTCY- CREDIT UNIONS-CROSS-COLLATERALIZATION

  1. Nathan Davis says:

    I am pleased that you have commented on this issue. I am not saying that the Credit Union is doing anything wrong, but, simply stating that the Credit Unions do this. As long as you are aware of what the Credit Union is doing, you should make the choice that is right for you.

Leave a Reply

Your email address will not be published. Required fields are marked *