How Credit Unions Should Respond to Borrower Bankruptcy Notifications

When a credit union learns that a member has filed for bankruptcy, the immediate priorities are to stop collection activity that may be prohibited by the automatic stay, verify the filing, update the account internally, review the credit union’s claim and collateral, and identify any upcoming bankruptcy deadlines.

The filing changes the recovery process, but it does not necessarily mean the credit union has no options.

At Sorenson Van Leuven, PLLC, we work with credit unions throughout Florida and Georgia on Chapter 7 and Chapter 13 bankruptcies, secured claims, automatic stay issues, and related collections matters. We also help teams understand what needs to happen internally when a bankruptcy notice arrives, so the right people receive the information before routine collection activity creates a problem.

1. Confirm the Bankruptcy Filing

Once the credit union receives notice of a potential bankruptcy, the filing should be verified and the case information reviewed. Important details include:

• The bankruptcy chapter
• Case number and filing date
• Bankruptcy court
• Debtor information
• Trustee information
• Important deadlines

This review also helps determine whether the notice applies to the correct member and account.

2. Stop Collection Activity Affected by the Automatic Stay

A bankruptcy petition generally triggers an automatic stay that stops most efforts to collect pre-bankruptcy debts. That can include collection calls, lawsuits, garnishments, foreclosures, and repossessions.

Credit unions should have a process for quickly communicating the filing to collections staff, servicing departments, outside counsel, and third-party vendors.

As Jim Sorenson puts it, “Bankruptcy is one of those situations where communication inside the credit union matters immediately. Everyone working with that account needs to know that the circumstances have changed before the next collection step is taken.”

3. Review the Credit Union’s Position

After immediate collection activity is addressed, the credit union should determine what it is owed and whether the debt is secured.

For a secured loan, that may involve reviewing the collateral, lien documentation, payment history, and value of the property.

The analysis may be very different for an unsecured credit card balance than for an auto loan or mortgage secured by valuable collateral.

4. Understand the Difference Between Chapter 7 and Chapter 13

In Chapter 7, a trustee may liquidate non-exempt assets for distribution to creditors. In some Chapter 7 cases, creditors are initially instructed not to file proofs of claim because no assets are expected to be available for distribution.

Chapter 13 generally involves a repayment plan lasting several years. Credit unions should review the proposed treatment of their claim and file a timely proof of claim when required to receive payments through the plan.

5. Track Deadlines and Evaluate Available Options

Bankruptcy notices contain deadlines that may affect the credit union’s rights.

Depending on the case, counsel may need to consider a proof of claim, an objection to a Chapter 13 plan, or a request for relief from the automatic stay. Relief from stay may be appropriate in certain circumstances when a secured creditor wants to proceed against collateral, although court approval is generally required while the stay remains in effect.

A reliable internal process for routing notices and tracking deadlines helps prevent important decisions from being made too late.

Build Bankruptcy Response Into Your Collections Workflow

A bankruptcy filing should not send an account into an administrative holding pattern with no clear next step.

Credit unions should know who receives the notice, who stops collection activity, who reviews the claim, when counsel becomes involved, and who is responsible for tracking the case afterward.

At Sorenson Van Leuven, PLLC, we help credit unions in Florida and Georgia manage that process while keeping internal teams informed about what the filing means and what comes next.

Do Not Wait to Respond to a Bankruptcy Filing, Contact Us Today

The first days after a bankruptcy filing can shape how effectively a credit union protects its claim and collateral.

If your credit union has received a bankruptcy notice or wants to strengthen its internal bankruptcy-response workflow, schedule a brief introductory call with our team to discuss the account and the next steps.