ALEXANDRIA, Va.-Rather than wait for Congress to decide bankruptcy abuse reform measures that have been debated for four congressional sessions now, credit unions are doing what they can to help members avoid bankruptcy and help themselves at the same time. A recent report (See story page 3) indicated that bankruptcy filings are in line to exceed 98′s record year of filings. NAPUS Federal Credit Union of Alexandria, Va., for example, said that it recognizes that its members are not perfect borrowers and spenders, but that does not mean the lending department is going to sit idly by and watch members bury themselves in debt. One way NAPUS, which holds $114 million in loans, safeguards itself and its members is by providing loans at a better interest rate and/or at a longer term, so that it is more manageable for the member. This does come at a price to the member though. "When we restructure loans that we consider a `work-out loan,' we try to get additional collateral," Elaine Ethier, director of lending for NAPUS said. `Work out loans' are loans used to consolidate a member's debt. According to Ethier, prevention is the best medicine for avoiding bankruptcy filings. She added that about 80% of NAPUS's charge-offs are due to bankruptcies. Additionally, NAPUS is not twiddling its collective thumbs waiting for the financial education provisions of the bankruptcy reform bills to kick in, if the bill even passes. NAPUS performs its own financial education for members who find themselves in hot water, members of the credit union's lending department explained. Because NAPUS has only one office but lends all over the country, much of the consumer education the credit union provides is over the phone, NAPUS Manager of Consumer Lending Robin Davidson explained. Typically, the $150 million federal credit union tries to have an actual loan officer, instead of a processor, talk with every borrower. Troubled borrowers are considered beyond their credit history and officers discuss with them their personal circumstances, employment, means, length of membership, and amount of revolving debt. Loan officers are trained at lending schools to provide a full financial picture to their members, Ethier explained. "Members love options," she said. NAPUS Collector Heidi Dawson clarified, "We need to understand if it's going to be a temporary problem or if it's going to happen again two months down the road." She added that after the credit committee denies a member a loan she calls the member to investigate further into why the member needs the loan. If it is a $2,000 loan to bring their mortgage current because of serious, temporary financial hardship, the credit union might be able to arrange something, she said. According to Dawson, many of their members say that NAPUS was the only financial institution that offered them help and education in their financial struggles. The NAPUS lending department feels that their efforts contribute to their 50% to 60% reaffirmation rate when members do decide to file for bankruptcy. Once a member does file for bankruptcy Dawson sends a follow up letter to the member and their attorney explaining the option of reaffirming their debts with the credit union and its advantages. Usually, she said the attorneys are not very helpful, but NAPUS almost always receives a response when the letter is mailed directly to the member. One advantage to reaffirming debts with NAPUS is the member will be more likely to get additional help from the credit union if and when they need it. Also, it is NAPUS's policy not to participate in risk-based lending so all members get the same rate. Some of the top reasons for filing for bankruptcy among NAPUS members are as a retirement tool, divorce, and plain old overspending. "If your nature is to overspend, then you have a mishap, there is a domino effect," Ethier commented. Ethier added, "The scariest thing about bankruptcy right now there is no stigma, no deterrent." Many members are not actually delinquent on their loans when they file for bankruptcy, Davidson said. Ethier added that she understood there is a legitimate need for bankruptcy protection. NAPUS recently enrolled the help of the Bankruptcy Defender Program, a VISA product through Payment Systems for Credit Unions, to help pinpoint potential problem loans. Because the program is brand new, Davidson could not evaluate it but predicted, "I think that will be an excellent tool [for the credit union] to avoid bankruptcy." The Defender program rates the credit union's portfolio and indicates which members are high risks for filing bankruptcy, she explained. [email protected]