Consideration of Bankruptcy the Result of a Poor Economy
Falling home prices, rising medical costs, and a stagnant job market are causing many families in the Pacific Northwest to struggle to keep up with their debt obligations. In this environment, bankruptcy will look like an unwanted, but increasingly attractive option.
April 5, 2011
Falling housing prices, a stagnant job market, and rising medical costs are causing many families in the Pacific Northwest to struggle to keep up with their debt obligations. In this environment, bankruptcy will look like an unwanted, but increasingly attractive options.
According to U.S. court records, bankruptcy filings were up 8 percent in the calendar year 2010, with consumer bankruptcies up more than 9 percent.
If an individual does choose to enter bankruptcy, people can declare bankruptcy through Chapter 7 or reorganize their debts with a Chapter 13 bankruptcy. In either case, the proceedings can last years, with a Chapter 13 case lasting a maximum of five years.
As a result, credit unions need to prepare themselves.
“Bankruptcy is the most complicated law that credit unions deal with, even more so than Reg. Z and privacy laws,” says bankruptcy attorney Eric North, of Moore, Brewer, Jones, Tyler & North. “It’s essential that they not only understand that law, but that they approach it in a careful, well thought out, policy-driven, team-based way.”
In 2010, Oregon and Washington credit unions had $540 million in reportable delinquent loans, with another $103 million charged off due to bankruptcies.
There are many reasons people choose to declare bankruptcy. Health costs and high medical bills are often cited, as is unemployment. Major life events or just simply getting in too much credit card debt can cause people to turn to the courts.
Seeing the signs and reacting early will help mitigate lost income for the credit union—and help senior management better plan for the future. Some early signs include high credit card bills that are not paid off on a monthly basis, over-use of home equity loans, and lack of emergency savings.
Learn practical strategies to implement in your credit union at an upcoming Northwest Credit Union Association (NWCUA) seminar featuring Eric North, an attorney at law who specializes in the representation of credit unions.
The NWCUA Training and Development Department will be hosting an Advanced Bankruptcy and Collections Seminar on May 3 in Federal Way, Wash., and May 4, in Portland, Ore.