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Bankruptcy rule must protect members says CUNA
WASHINGTON (7/16/09)—The Credit Union National Association (CUNA) urged the U.S Solicitor General to continue to defend the Bankruptcy Reform Act in order to help protect credit union members from the cost of some debtors’ unscrupulous use of bankruptcy law. CUNA’s July 15 letter to Solicitor General Elena Kagan centers on the U.S. Supreme Court’s recent agreement to review the constitutionality of certain provisions in the 2005 bankruptcy law. The pending cases center on whether bankruptcy lawyers may counsel debtors to run up additional debt after deciding to declare bankruptcy but before the petition has been filed. “We were pleased that, during your confirmation hearing, you cited numerous factors that you said favored continuing the defense of the constitutionality of the Act,” CUNA President/CEO Dan Mica wrote. Mica explained that the issue of such abusive behavior in bankruptcy is of special importance to credit unions because, as member-owned, not-for-profit cooperatives serving as financial intermediaries between savers and borrowers, credit unions’ money is their members’ money. “When one credit union member has his or her debts discharged through bankruptcy, the credit union and its other member-owners ultimately pay for these debts through depletion of the cooperative’s jointly owned capital as well as lower dividends on savings and higher interest rates on loans. “This is particularly true for the many credit unions with fewer than $10 million dollars in assets for which losses of even thousands of dollars can have a material impact on operations and, in some cases, threaten a credit union’s viability as a going concern,” Mica warned. He assessed, “The government has a compelling, legitimate interest in regulating this form of speech because of bankruptcy’s harmful impact on credit unions and their members, especially during this major recession.” Mica concluded: “Credit unions have a long track record of giving their members a fair deal, and we see no persuasive argument why lawyers have a constitutional right to counsel their clients to capture as much of a credit union’s cooperatively-owned capital as possible through the bankruptcy process. “The public policies underlying 11 U.S.C. § 526(a)(4) are sound and we hope that you decide to continue the defense of that provision before the U.S. Supreme Court.”


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