CUs Eye Increased Collections FromBankruptcy Reform

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WASHINGTON - (03/25/05) -- As the bankruptcy reform bill nearsthe finish line of a nine-year race, observers are trying todetermine what benefits credit unions can expect from the measure.Final passage of the bill approaches as the number of credit unionmembers filing for bankruptcy continues near record highs--255,000last year--while the amount of credit union loans subject tobankruptcy continues to soar to new levels--$2.3 billion in 2004,according to NCUA. Experts believe credit unions will be able toimprove their collections by barring those bankruptcy filers withsome financial means from Chapter 7, which allows them to erase allof their debts, and requiring them instead to file a Chapter 13 toreorganize their repayments. "Had this bill been in effect lastyear, and had this bill been effect for several years, creditunions could have improved their collections by at least $60million a year," Bill Hampel, chief economist for CUNA, told TheCredit Union Journal. Hampel used several assumptions in coming upwith his estimate, including the fact that about 40% of all creditunion charge-offs are bankruptcy related; that about three-fourthsof bankruptcy-related losses are those from Chapter 7 filers; andthat advocates project a 10% to 19% improvement in collections,Hampel figures that comes to around $65 million, on the lowend.

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