What Credit Unions Should Do When a Member Files for Bankruptcy

If your credit union handles any meaningful volume of collections, member bankruptcies are part of the landscape. Some are straightforward. Others raise questions about collateral, repayment, or next steps. The difference often comes down to how quickly your team can assess the situation and respond.

At Sorenson Van Leuven, PLLC, we work extensively with credit unions across Florida and Georgia on these matters, not just when a filing occurs, but as part of an ongoing approach to collections, bankruptcy, and recovery. Our focus is on helping teams understand what they are seeing, stay aligned internally, and respond in a way that is both efficient and consistent.

From there, it becomes a matter of understanding the process itself and what steps make sense in the moment.

Understanding Member Bankruptcy

When a member files for bankruptcy, an automatic stay goes into effect immediately. This pauses most collection activity, including calls, letters, lawsuits, repossessions, and foreclosure actions.

From a practical standpoint, the account shifts from active collection to review and monitoring. The focus becomes understanding the type of filing, the credit union’s position, and what options may be available as the case moves forward. Here are the steps you should take.

1. Review the Bankruptcy Notice

Start by carefully reviewing the notice of bankruptcy. This document outlines the type of case filed, typically Chapter 7, Chapter 11, or Chapter 13, along with important deadlines and case details. Each chapter is handled differently, so understanding the filing early helps guide your response.

2. Cease Collection Activities

Collection activity must stop once the stay is in place. This includes direct outreach, internal collection workflows, and any legal proceedings already underway. Even unintentional violations can create issues, so having a clear internal process is important.

3. Assess Secured and Unsecured Positions

Take time to evaluate where your credit union stands. Secured loans, such as vehicle loans, are treated differently from unsecured debt. Understanding your position early allows for more informed decisions as the case develops.

4. Engaging with Legal Counsel

Bankruptcy matters often involve procedural steps, deadlines, and strategic decisions that are not always obvious at the outset.

Working with attorneys for credit unions who are familiar with these processes can help bring clarity to the situation. That may include reviewing claims, determining whether action is needed, and making sure the credit union’s rights are preserved throughout the case.

For many credit unions, this is less about a single issue and more about having a consistent approach across multiple cases.

Local Considerations Across Florida and Georgia

Although bankruptcy cases are handled under federal law, state-level exemptions and procedures can still have a meaningful impact on recovery efforts.

In Florida, homestead protections and other exemption laws may limit what assets are available to creditors in a Chapter 7 case. Those same protections can also influence repayment expectations in Chapter 13 proceedings.

Georgia presents a different landscape. The state follows its own exemption structure, and certain procedural differences can affect how secured claims are treated and how recovery strategies are evaluated throughout the case.

Effectively Communicating with Members

Maintaining a professional and measured approach helps preserve relationships while ensuring compliance. In some cases, providing clear, factual information about how the process affects the account can help avoid confusion.

If a member in bankruptcy contacts the Credit Union, the goal is not to engage in collection activity, but to remain consistent, accurate, and respectful in how communication is handled.

Contact Us for Practical Guidance on Your Member Bankruptcy Matters

Most credit unions are not looking to manage bankruptcy matters on an ad hoc basis. They are looking for a process that is clear, consistent, and workable across their organization.

At Sorenson Van Leuven, PLLC, we work extensively with credit unions across Florida and Georgia on bankruptcy, collections, and recovery matters. Our role is to help teams understand what is happening, evaluate available options, and respond in a way that fits their operations.

We are available to walk through your situation, discuss practical considerations, and help you determine next steps.