When you use a Credit Union to finance a car purchase, the Credit Union will often put a clause in the security agreement that allows it to secure any other debt that you may already have with that institution. Very few customers know that such a clause is in the contract when they sign off on their financing agreement.
Once the contract is in place, if the customer ever returns to the Credit Union to get a line of credit, a credit card or any other kind of loan that would normally be completely unsecured, the car will automatically serve as collateral for the new would be unsecured loan. These cross-collateralized loans are a real hazard for the unwary in bankruptcy.
It is normal for a vehicle lender to demand that their bankruptcy customers sign off on a reaffirmation agreement once they have filed bankruptcy in order to keep the car, particularly if the customer has fallen behind on payments. loan. Debtors need to take care in either not reaffirming their car loans. Alternatively, Debtors with cross collateralized loans might want to seriously consider Chapter 13 Bankruptcy where the cross-collateralized loans might be stripped off of the car.