FRANKENMUTH, Mich.-When members of Frankenmuth CU file for bankruptcy, the credit union steps in to provide a helping hand and pick up a good car loan at the same time.
Frankenmuth CU is making car loans to members who file for Chapter 13 bankruptcy. The loans are risk-priced and are often made to members who need to get out from under an existing upside-down car loan at a rival institution and acquire reliable transportation.
CEO Vickie Schmitzer said the loans are closed before the bankruptcy plan is finalized, and the loan becomes part of the plan.
"Our first goal is to help our members who are struggling and looking for ways to pay their creditors, which is what you are doing by filing for Chapter 13," said Schmitzer, who said once the CU is notified a member has filed for bankruptcy, its collection attorney, Tammy Piesko, attends the initial bankruptcy meeting. There, she listens and looks for ways the CU can help. Schmitzer said that often means a car loan.
"So many times we see the member in a bad loan situation with a car that is not reliable," said Schmitzer. "They need dependable transportation to get to work so they can pay their bills."
The bankruptcy plans state the credit union will be paid first, ahead of all other creditors.
"The program is beneficial, too, for the credit union," stated Schmitzer. "There is little risk involved and it's an opportunity to increase our lending. These loans will have very low delinquencies because they are being paid by the bankruptcy plan. Plus, we know every detail of these members' finances-more than we know about most of our other members."
How Loans Are Priced
The $231-million credit union charges rates based on the member's credit. "If they are E credit they get E rates," said Schmitzer. At press time, FCU E credit car loans were 15% APR, A credit was 3.89%. Frankenmuth started the program in December and has 20 of the loans on the books and ten more in the pipeline.
An important part of the program is making sure the car the financially troubled member receives is fairly priced. Schmitzer explained that the bankruptcy attorney, bankruptcy trustee, and the CU carefully screen local dealers and FCU is now working with three highly reputable car dealerships. The CEO added that there are no limits placed on the amount of the car loan, the payments just have to fall inside members' ability to pay.
Collections Attorney Piesko said members are very grateful for the help. "They thank the credit union for being there for them, and to help them afford reliable transportation, something they need to stay in and complete the bankruptcy plans that run from three to five years, on average.
