     Voigtkampff | Sunday, January 30, 2000 - 04:19 pm 
To Kristy Feathers:
Just noticed that you used to manage a credit union. Great! Help me please. It is standard for the CU (but not banks) to cross-collateralize their car loans with other loans or with credit card debt. So people come in to file bnk, state that they want to keep (for example) their car with a $10,000 value and an $11,000 lien. OK, it's negative equity, but I can't call it stupid.
But with the cross-c they often find that the $8,000 loan or credit card that they thought was unsecured, actually attached to the after-acquired car, so now it is really a $19,000 lien ($11,000 + $8,000). $9,000 in negative equity is clearly stupid to re-affirm.
The CU will not budge and demands a re-aff for the full $20,000. My client says heck no, surrenders the car, and now the CU gets nothing instead of $11,000. Nobody is happy. An economically unwise position for the CU to take. But they never give in to reason and logic. I read a recent case from one of our better judges where he politely called it ridiculous, but said it was the CUs right.
Anyway to reason with the CU? I have read SOME of the CU statutes and they state that if the CU loses even a penny on a member, then that member is not in good standing. OK. And I understand that the CU is not FDIC insured. But still!!!
How to help my people? |
| Kristi F.Carreonandassociates.com | Sunday, January 30, 2000 - 09:18 pm
Voigtkampff:
As per section 525 of the BK code, we could not discriminate because they filed Bk but we could exercise our right to refuse services because we suffered a loss regardless of the reason.
This is a major position within the CU's. Members are often given loans on merit because CU views them as members of the family so there is much more lenience. When a member does file BK the Credit Union will use to secured loan as bait to get the re-aff. If the member refuses, it has many bad results. The CU will take their account down to 5.00 (can't close it but will limit it) then they will refuse to let the member have any services at all associated with the CU except the mandatory 5.00 savings. The member, especially if Union will now have no choice but to keep entering the CU to get their employee vacations funds and continually suffer embarrassment.
Many credit unions at one time were not effectively using the CC clause. I had always used it very successfully. I would attend CU seminars and was amazed at how many CU were unaware of it and the power it held. Eric North of the North Law firm in San Jose California is one of the best BK CU attorney's. He showed CU how to use them effectively because loan losses were extremely high. Some things he pointed out that were important. Credit Unions could no longer mention it just anywhere in their verbiage.
It had to be a separate line above the members signature and we were required to get the member to not only sign but initial that paragraph. If we did not then it would not stand up because it was "inconspicuous". If the creditor rights "none" or signature on the collateral line they may have waived their right to use CC-clause We also had to get a separate pledge of shares signed (for Visa's because of Reg Z) to inform them that we had the right to "freeze" all funds in their account as soon as we got wind of the BK. Mind you, we could not offset the funds but could freeze them until we either went in for release from stay or waited until discharge. I can't really tell you how to get around it because the credit unions know it is their ticket to re-aff.
I was quite lenient though, and would not make the debtor do a court approved re-aff but merely a voluntary pay plan wherein they could default and I could not collect on unsecured debt but I still held title to secured debt so default was minimal (have you tried to see if the CU will accept volunt Pay plan rather the Re-Aff?).Some Cu's don’t really understand the difference. We never waived the right to CC clause and I had many attorneys asking me to please waive it.
Now I don't know how effective this would be but what about a chapter 20, (7 followed by a 13 to wipe out unsecured then convert to 13 to drag out and cram down secured? Would that work or is that too much trouble?.
The judge was right; Cu can refuse service forever if they suffer any loss from that member. Other members also tended to shun the bankrupt member because they felt the loss came right from their own pocket. The Cu statutory lien right was used by me always.
Now about the CC clause::
How is the CC clause written? If it is well written it causes the collateral to cross over forward and backward. If it is not well written you can probably get around it. Here is a good scenario.
Debtor files Bk on debts, makes his position clear that he plans to keep the car but does not realize the car is acting as security to signature loan.
CU threatens to repossess because car is current but sig loan is defaulted. Debtor gets attorney because he believes they are repossessing his car because of unrelated sig loan, attorney is maybe unaware of UCC 9-204 and sees no legal right to repossess. By that time the CU is now involved in costly suit and Debtors attorney can probably now find some legal basis. Creditor may lose on some minor technicality.
Judges do not always understand CCC's and they do not like them because they conclude that consumers do not realize that a cross colat clause was in their loan. The CC clause must be very conspicuous.
If you can show, the value and the car can sell for less then the balance then the CC clause has done the CU no good. CCC's should only be used if there is a surplus of equity in car. We were always taught to never repossess on basis on CC clause only, but to simply use it as a collection tool.
Debts are dischargeable in BK but Liens survive so if your debtor turned the car over then there is now no lien. I can tell you what our position as a Cu was and this may be helpful later, since your debtor apparently already turned the car in.
Have the debtor reaffirm the car, even if he is aware that there is a cc clause in agreement.
Months pass the debtor keeps paying car but lets signature loan default. CU will usually not repossess solely on CC clause but will hold title. Debtor just runs car until it drops and could care less about lien now. Debtor later disputes debt to the CRA that it was INC IN BK, debt is old creditor does not respond, debt removed.
How should attorneys handle CC-clause?
At the 341 meeting, tell the creditor client wants to reaffirm car but wants cc-clause released. Have blue book value of car handy to show creditor how costly it would be to lose car and unsecured debt as well.
Attorneys zap many creditors this way. The debtor can always reaffirm car, given creditor agrees to remove cc- clause and then volun promise to repay unsecured debt. Debtor defaults, debts are not linked. It is very important to zap the creditor at the 341 with bluebook in hand. Many times attorneys do not do it until later.
Also, I know some states have different positions on UCC.
This of course is in reference to a chapter 7 because in a chapter 13 both debts would be filed with proof of claims under secured. I really tried to find a way around this for you, but it is a good clause. However, I do know judges hate them. CC clauses should never be used in Real Estate and can be touchy with credit card debt because of Reg Z.
Sorry so long, but It's an interesting point.
Kristi Feathers
CarreonandAssociates.com |
| Voihtkampff | Friday, February 04, 2000 - 07:35 am
Thanks Kristi. More than I expected.
Is the $5.00 a local or state law, or is it federal and therefore also applicable in Florida?
The CUs here do no bother to make the cross-C conspicuous. Nor so they require that it be initialed. They also do not accept voluntary pay plans. And they do not even appear at the 341s to hear arguments. And in most cases, I feel that a chapter 20 is too much work. I don't charge much.
Could you explain the comment about getting a separate pledge of shares and Reg Z? Are you saying that the CU would get a perfected lien on the money in the member's financial account? |
| Kristi F.Carreonandassociates.com | Friday, February 04, 2000 - 08:13 am
V:
Reg Z applies to Visa accounts. If a seperate pledge of shares is not signed then the cu cannot take $ if debtor were to default. As for money in the debtors account(s), they can only freeze it in a BK but not offset it. Offset would be considered a violation of the stay. They can freeze it and then go in for relief from stay or offset post-petion.
Kristi Feathers |
| Kristi F.Carreonandassociates.com | Friday, February 04, 2000 - 08:19 am
V:
I believe the 5.00 is a federal law. Also if your state has inconspicuous verbage, maybe you can get out of cc-clause on that premis. |
