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Chicago bankruptcy attorney credit union

Bankruptcy is a complex process for any financial institution, but for credit unions, in particular, there are some special issues to take into consideration when proceeding with your debt collection efforts. Unlike many banks, auto lenders, truck lenders, equipment lenders, or other financial institutions, credit unions face additional challenges in their recovery efforts due to the nature of their organizations. Here are some tips for how to manage member bankruptcies or other debt collection needs if you work for a credit union.

3 Keys to Successful Credit Union Debt Collection 

While there are many ways you can pursue debt collection successfully, recouping as much of the lost funds as possible, that are similar to banks and other related institutions, there are certain approaches that credit unions should keep in mind when pursuing collection efforts against one of their members, such as the following:

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Four Steps Creditors Must Take in Response to BankruptcyThe number of people who have recently become jobless in the U.S. may cause an increase in people who default on their debts. Creditors have several methods of handling a defaulted debt, such as debt collection practices, modifying the debt agreement, or taking the debtor to court. A debtor may try to clear their debts by filing for bankruptcy. Bankruptcy can prevent unsecured creditors from collecting their remaining debt if the bankruptcy filer is allowed to discharge their debts. If your debtor has filed for bankruptcy, there are several steps you must take to have a chance at still receiving the money you are owed:

  1. Honor the Automatic Stay for Now: A bankruptcy notice includes an automatic stay on all debt collection activity. You may have a reason to contest the stay or the bankruptcy, but your immediate reaction should be to stop communicating with the debtor or trying to repossess properties. You can be penalized for knowingly violating the automatic stay.
  2. Promptly File Your Proof of Claim: In order to receive a portion of the bankruptcy assets, you must file a proof of claim that states what the debtor owes you. The bankruptcy notice should give a deadline by which you need to file your proof of claim. It is imperative that you do not miss that deadline.
  3. Take a Closer Look at the Bankruptcy Case: You need to study the details in the bankruptcy claim before the first meeting of creditors. The debtor could be trying to abuse the bankruptcy process by underreporting their debt to you or hiding assets that could be used to repay creditors. You will have the chance to bring up any discrepancies to the bankruptcy trustee during the meeting.
  4. Consider a Request to Lift the Automatic Stay: You can continue debt collection efforts during the bankruptcy by petitioning to lift the automatic stay, but the bankruptcy court is unlikely to grant your request if the debt does not involve a secured property. You can argue that you should be allowed to continue foreclosure on a home or repossession of a vehicle if the debtor does not have enough equity in the property to cover the remaining value of the loan.

Contact a Chicago Creditor’s Rights Lawyer

Whether you are repaid at the end of bankruptcy depends on the type of bankruptcy being filed and your priority as a creditor. In Chapter 7 bankruptcy liquidation, secured creditors and priority unsecured creditors are paid before general unsecured creditors. In Chapter 13 bankruptcy, unsecured creditors have a better chance of receiving some money during the repayment plan. An Illinois creditor’s rights attorney at Walinski & Associates, P.C., can explain what you are likely to receive from a bankruptcy case. To schedule a consultation, call 312-704-0771.

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Consequences of Violating an Automatic Stay During BankruptcyWhen a debtor files for bankruptcy protection, the court will put an automatic stay on collecting the debt. This means that creditors must stop contacting the debtor with collection notices or attempting to repossess collateral properties until the bankruptcy is completed or the stay is otherwise lifted. Violating the stay is a serious offense that may result in court fines or the debtor filing a lawsuit against you. The severity of the penalty depends on whether you knowingly violated the stay and whether you continued to violate it after being told to stop.

Violation Examples

Once it is confirmed that you received notice of the debtor’s bankruptcy filing, you are expected to comply with the automatic stay. This means you are not allowed to:

  • Send letters to the debtor demanding repayment
  • Call the debtor about the debt
  • Garnish their wages or other monetary assets
  • Repossess properties without the permission of the court

Intentionally ignoring the automatic stay is a violation of the Fair Debt Collection Practices Act and may lead to sanctions that cost you thousands of dollars. The bankruptcy trustee will be your contact during the process.

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Illinois Creditors Bar Association Chicago Bar Association Illinois State Bar Association
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