Loan Default in Michigan - Will my Credit Union or Regional Bank Pursue Me for the Debt?

In general, banks are becoming more aggressive in pursuing loan deficiency claims.  From our experience, small regional banks and credit unions are much more likely to pursue collection on a loan default simply because:

• They cannot absorb losses like larger banks;
•  They do not receive government funding to offset losses.

What is a Loan Default?

A loan default occurs when you can no longer afford or no longer wish to pay on a debt and fall behind on payments.  Examples of typical types of loan defaults:

• Vehicle loan;
• Mortgage;
• Second Mortgage or Home Equity Loan;
• Personal Loan or Line of Credit.

Technically you are in default after one missed payment.  A large misconception is that your lender cannot begin a foreclosure on your home or repossess your vehicle if you are only one or two payments behind - this is simply not true.  

What can I do to resolve a Loan Default?

If you get behind on payments, here are your options:

• Bring the account current:  You can bring the account back into good standing by paying past due payments, late fees, interest charges, applicable penalties and possibly legal fees.
• Settle the debt:  If you default and can no longer afford to make payments on the loan, you can attempt to settle the debt for a reduced amount in one lump sum payment.  Again, regional banks and credit unions are generally less likely to provide deep settlements based on their size.
• Chapter 13 Debt Consolidation:  Chapter 13 bankruptcyis a means to set up repayment terms or likely eliminate a portion of the debt if you chose to surrender the real property (i.e. house or car).  The program provides legal protection from creditor actions while allowing you to set up a budget and repayment plan based on your unique circumstances.  Through the Chapter 13 bankruptcy, we can immediately:
  • Stop or prevent a home foreclosure before the sale occurs;
  • Halt a vehicle repossession or get a vehicle back before it is sold at auction;
  • Stop a judgment or garnishment;
  • Remove a second mortgage or home equity loan if the value does not support the lien;
  • Provide court protection from creditor call, collection efforts or lawsuit.
• Chapter 7 Debt Elimination:   By filing Chapter 7 bankruptcyyou can gain a fresh start by eliminating unwanted unsecured debts such as:
  • Credit cards;
  • Medical bills;
  • Loan deficiency debt;
  • Old utility bills, etc.

This ensures that the debt you can longer afford to pay is legally eliminated with a court discharge.  This prevents harassing creditor calls, collection efforts, judgments, garnishments and the continued negative impact on your credit due to late reports from your lender.  Your payment history alone accounts for 35% of your credit score according to FICO. Under bankruptcy, the rules are generally the same for all banks big or small.  The major exception is that credit unions have a right to "set off".  This means that they can apply whatever funds that are currently on deposit at the time of filing towards to any outstanding loans due to the credit union.  We advise clients to remove any funds from the credit union prior to filing a bankruptcy.   For more information regarding loan default or options to resolve your debt through settlement or bankruptcy please call us at 866-261-8282 for a free consultation with a licensed Michigan attorney.  We will carefully review your finances and make informed recommendations regarding your available debt resolution options.