Charles Faulkner, president/CEO of the $67 million JeffersonCredit Union in Birmingham, Ala., could probably write the book onhow credit unions might prepare for the fallout from a municipalbankruptcy.

In fact, Faulkner and his credit union are going through such anexperience now – “and fortunately we're OK,” he says – followinglast Wednesday's court filing of the nation's largest municipalbankruptcy at $4.5 billion by Jefferson County, the state's mostpopulous and home to its largest city.

Jefferson CU, holding a community charter and with 9,000 membersin seven counties, was formerly known as Jefferson County EmployeesCU before shortening the name and diversifying its membership.

The county's financial travails, including corruption chargesthat have sent some of its top managers to prison, dates back to atleast 2008 “and so it is something we've lived through,” Faulknersaid.

He said his credit union has been able to keep its capital ratioin good shape at 9.48% but now is girding for a spike indelinquencies as members grapple with the prospect of hugeincreases in sewer bills to be ordered by the courts.

Faulkner noted that the first obvious sign “that we faced somebig trouble” came in 2009 when county commissioners, as part oftheir dealing with bankruptcy threats, threatened to close thecourthouse entirely.

“Now that happens to be where our main office is located so weknew we had a problem,” laughed Faulkner.

Since then, the CU has witnessed the highs and lows of thepolitical battle over a federally mandated sewer project whichbecame ensnared in delays and court battles and later hit withcorruption charges.

The municipal fight climaxed with the Chapter 9 bankruptcyfiling by county commissioners. That filing gave the countyprotection from creditors including JPMorganChase while a debtadjustment plan is being developed.

Anticipating possible future losses, the CU “delayed plans in2011 for new branches” planned for Birmingham suburbs. The boardhas adopted a wait-and-see stance on such expansion for 2012,Faulkner said.

Currently the CU is engaged, he said, in loan restructuring andmodifications for some of its hard-pressed members. “We have alsobeen using services of Greenpath Debt Solutions,” he said referringto a national Detroit-based counseling agency.