By: Michael L. Moskowitz and Melissa A. Guseynov

Credit Union Alert: Bankruptcy Court Concludes Federal Credit Union Qualifies as a “Governmental Unit”In a recent opinion of interest, the Bankruptcy Court for the District of New Mexico held that a federal credit union constitutes an “instrumentality of the United States” as included in the definition of “governmental unit” pursuant to section 101(27) of the Bankruptcy Code. In re Marquez, Case No. 19-10284-j7 (Bankr. D. N.M. Sept. 30, 2020). Read the full opinion here.  

In this chapter 7 case, the general bar date (the deadline by which a creditor must file a proof of claim) was July 19, while the bar date for governmental units was October 8. When the trustee contended a federal credit union’s proof of claim was untimely because it was filed on July 22, the credit union objected, stating it was subject to the later governmental bar date.

In his opinion, Bankruptcy Judge Robert H. Jacobvitz remarked that under the Bankruptcy Code, whether a federal credit union is a “governmental unit” depends on whether it is an “instrumentality of the United States.” 11 U.S.C. § 101(27). Since there is no uniform standard to determine whether an entity is a federal instrumentality, courts look to several factors including, but not limited to, whether an entity performs an “important government function.” Other factors include whether an entity receives federal aid, is owned or controlled by the government, provides profits to the government, allocates losses to the government or is exempt from state taxes.

The Court was primarily guided by two analogous cases from the First and Sixth Circuits, which both held that credit unions constitute governmental entities. In United States v. State of Michigan, 851 F.2d 803 (6th Cir. 1988), the Sixth Circuit explained that federal credit unions serve several important governmental functions, including the provision of affordable credit to middle-class Americans. In addition, they may act as fiscal agents and depositories of public money. Significantly, the Sixth Circuit noted that Congress expressly exempts federal credit unions from almost all forms of state and local taxation.

Correspondingly, in TI Fed. Credit Union v. DelBlonis, 72 F.3d 921 (1st Cir. 1995), the First Circuit concluded that a federal credit union constituted a governmental unit for purposes of non-dischargeability of certain student loan debt in bankruptcy, explaining that “performance of governmental functions, exemption from federal tax, and extensive government regulation are compelling indicia of federal instrumentality status.” Lastly, the Court examined In re Trusko, 212 B.R. 819 (Bankr. D. Md. 1997), wherein a bankruptcy judge held the deadline for filing a proof of claim applicable to governmental units applied to credit unions.

Notwithstanding these comparable cases, Judge Jacobvitz wasn’t “entirely convinced” federal credit unions should be characterized as governmental units, as they offer “many of the same types of services as other financial institutions.” Thus, in the end, the Court concluded a federal credit union could be characterized as a “governmental unit” in certain circumstances, but not others. In this particular case, given the significant governmental functions that federal credit unions undertake in addition to substantial regulation by the federal government and their exemption from state taxation, the Court concluded that a federal credit union is a governmental unit under section 101(27) of the Bankruptcy Code, entitling it to file a proof of claim pursuant to the governmental claims bar date.

This decision underscores how important it is for all creditors, including federal credit unions, to understand and act on applicable deadlines in order to preserve their rights, particularly when the law in a jurisdiction may not be clear as to which deadline a credit union must adhere. Creditors should immediately consult with experienced bankruptcy attorneys to preserve their rights and to ensure any and all claims are timely filed with the bankruptcy court. Weltman & Moskowitz will monitor case dockets for further developments on this issue and update our readers as events warrant.

Please feel free to call Weltman & Moskowitz with any bankruptcy questions or challenges you, your colleagues, or clients, may have.

Richard Weltman & Michael Moskowitz |

About Weltman & Moskowitz, LLP, A New York and New Jersey Business, Bankruptcy, and Creditors’ Rights Law Firm:

Founded in 1987, Weltman & Moskowitz, LLP is a highly regarded business law firm concentrating on creditors’ rights, bankruptcy, foreclosure, and business litigation. Michael L. Moskowitz, a co-founder, focuses his practice on business and bankruptcy litigation, shareholder and partner disputes, business divorce, commercial dispute resolution, as well as a full range of creditor’s rights, foreclosure, adversary proceeding litigation, corporate counseling, M&A, and transactional matters. Michael can be reached at (212) 684-7800, (201) 794-7500 or Melissa Guseynov is an associate with the firm. Melissa can be reached at