How Can I Repair My Credit Score After Bankruptcy? KDB Law Firm Credit and Bankruptcy Part Four

If you have filed for bankruptcy, your credit score will be affected.  So how can you be proactive and work to repair your credit? Here are some important steps to take to improve your credit:

1. Pay on Time (By Paying in Advance): Pay your current bills and loans reaffirmed in bankruptcy in advance. In Part One {LINK} and Two {LINK} of the KDB Law Firm series on credit and bankruptcy we discussed the easiest ways to both help, and conversely, harm, your FICO score: your payment history. As you now know, your payment history is 35% of your FICO score.

2.  Follow Up with the Three Major Credit Reporting Agencies: Send each reporting agency a copy of your discharge notice as well as the schedule of creditors listed in your bankruptcy (schedules D, E, F). This is an important element to being repairing your credit after bankruptcy, as creditors are no longer able to report the discharged debt as owing on your credit file.

3.  Monitor your Credit: Check with each credit agency quarterly to confirm that the creditors are abiding by the discharge order and your discharged debt is being accurately reported. If a creditor fails to accurately report the debt as discharged or is continuing to attempt to collect on the debt, they are committing “discharge violation”. If you notice such discharge violation, which is common in most cases, contact your attorney immediately.

4. Wait Before Seeking New Credit: Hold off as long as possible before seeking credit. You will find lenders who will make loans to you immediately after a bankruptcy, and they will seek you out. It is not uncommon to receive credit card offers in the mail even before you receive your discharge! However, you can expect to pay rates 5-10% higher than most people. That may not seem like a lot, but based on an average 30-year financial lifetime, the additional interest you could pay could end up as much as $200,000 or more.

5. Rebuild Credit with a Secured Credit Card: Many people looking to repair their credit start with a local credit union or bank and open a secured credit card. A secured card (meaning you back it with equal funds in a savings account) will help rebuild your credit history. After 6 months to a year of using a secured card you will find that you can get a more traditional credit card without having to put up the cash first. However, even then be very careful and read the fine print!

In summary: after you file for bankruptcy and receive your discharge, be sure to monitor your score diligently, pay your bills slightly in advance, wait until your score improves before seeking new lines of credit, and improve your score by using a secured credit card.

For more bankruptcy information, visit http://www.KDBLawFirm.net/.

Be safe and be well! ~Kirk Berkhimer, Norfolk Bankruptcy Attorney

Are you enjoying Twitter as much as I am? Find me at @Norfolk_Lawyer.

Creditors; Secured, Unsecured or Priority!

When talking about debts you will often hear folks distinguish between secured and unsecured debt.  A secured creditor, or secured debt, is debt that upon the debtor's default the creditor has the right to proceed against collateral and apply those proceeds against payments owed.


Now, in plain English .... let's take a car loan for example.  When you purchase a car and take out a loan from a bank to pay for it, the bank will secure the loan with the car.  What this means is that if you fall behind on your payments, the Bank has the right to repossess your car.  Once the car is repossessed they will most likely try and sell the car and apply whatever money they get towards the outstanding loan balance.  The Bank may also add any additional fees that they had to pay in repossessing the car, such as attorney fees, etc.  More often than not the money they obtain from the sale of the car will not cover the entire balance left on the loan so they then will come after you for any balance still owed!  So, in the end you've lost the car and still owe money!

An unsecured loan or debt would be something like a credit card, personal loan or student loan.  With this type of loan the creditor does not have the right to repossess the item you purchased, but instead would likely use the courts to obtain any monies owed from you.  Again, let's take an example.  Let's say I purchased a couch on a credit card.  If and when I fall behind on my monthly payments to the credit card company they have the right to file a Warrant-in-Debt against me personally.  Here in Virginia the Warrant-in-Debt is how the creditor asks the courts to verify that you owe the money.  Assuming that you are found to owe the money, then ten (10) days after the court hearing they then can obtain a garnishment and take up to 25% of your paycheck to be applied toward the monies owed.

[A warrrant in debt is a summons to a defendant to appear in court because they are being sued for a debt. For example, in Virginia’s General District Court, the most common means to initiate a claim is the Summons for Warrant in Debt. However, the warrant in debt provides only limited information and therefore is a notice-based pleading. Along with the bill of particulars, the warrant in debt makes the pleading fact-based. A warrant in debt is the initial filing to start a garnnishment proceeding in some jurisdictions.]

Several examples of Secured and Unsecured debts are as follow:

       Secured:       Home mortgage, car loan and high value items such as stereos, computers, air conditioners, etc.

       Unsecured:   Credit cards, medical bills, student loans, etc.
                                  

There is a third type of debt that comes into play during Bankruptcy - Priority Debt.  This category identifies creditors that are given special attention.  The most common examples are income tax debts and past due alimony or child support payments.

If you are considering bankruptcy, then understanding what type of debt you have is important.  Depending on whether you file a Chapter 7 or Chapter 13 Petition will provide you various options in dealing with your debt.  For example, in a Chapter 13 Bankruptcy Petition if you are behind in your car payments you may bring your payments current and keep your car.

Next time we'll talk some about property - what types there are and how it is handled in a Bankruptcy.  If you'd like to come in for a FREE CONSULTATION, please, give me a call!

757-410-9263

Visit our web site at http://www.KDBLawFirm.net

and follow us on Twitter

@norfolk-lawyer.

Be safe, be blessed and be proactive!

Creditors; Who are they?

Taking charge of your Bankruptcy starts with identifying your creditors.  Not all debts are discharged in a Chapter 7 Bankruptcy, but for an allowed debt to be discharged it must be listed!  A great place to start is running your credit report.  Did you know that you are entitled to a free credit report every year - click the link below to learn more:

FREE CREDIT REPORT

I say that your credit report is a starting point - not every creditor is going to report to the credit bureaus so do not get caught in the trap of thinking that your report, no matter how current, is complete.

Those creditors that have a zero balance do not need to be listed, but otherwise you must list them all.  Below is just a sampling of the various types of creditors that you may have:

• Credit cards,
• Medical bills,
• Student loans,
• Car loans,
• Unpaid taxes,
• Unpaid tickets (traffic, parking, etc.),
• Overdue storage fees,
• Obligations under leases or contracts,
• Personal loans,
• Promissory loans,
• Lawsuit judgments,
• Debts arising from traffic accidents,
• Domestic support obligations (child and/or spousal support),
• Fines, penalties and restitution,
• Property taxes,
• Intoxicated driving debts,
• Condo, cooperative and Homeowners' Association fees, and
• Loans from a retirement plan.

Once you have identified all of your creditors make sure that you have a current address, account number and amount owed.  Frequently, the original creditor may transfer your account to a collection agency for follow-up.  If this is the case, then go ahead and collect the information on both entities keeping in mind that the account numbers, addresses and amounts may change.

I mentioned previously that not all of your debts are discharged in a Chapter 7 Bankruptcy.  For example, student loans and tax debts are not discharged unless you can prove that you are an exception to the rule.  Also, Domestic Support Obligations like child support and alimony are not dischargeable.  Additionally, debts owed to a spouse or child that were obtained through a divorce or separation are nondischargeable.  Also, fines that were imposed by a federal, state or local government are not discharged.  The list goes on - don't get discouraged, most folks considering Bankruptcy are dealing with overwhelming consumer debt such as credit cards and medical bills.

Interesting Facts

In 2010, in Virginia, approximately 23,949 Chapter 7 Bankruptcy Petitions were filed.

Approximately 85% of consumer filings were for Chapter 7.

The median average monthly income reported by all (nationwide) debtors was $2,872.

Chapter 7 cases were historically handled within approximately 150 days in Eastern VA.

 
The graphic to the left was obtained from the U.S. Trustee website and represents the number of Chapter 7 Petitions filed in Virginia for the period 1999 through 2009.  Note the significant drop in 2006 - the year following the revision to the Bankruptcy Code.

If Bankruptcy may be in your future, please give us a call today and make an appointment.  We'll take the time to listen to your situation and walk through the various options that may be available to you!  You will not know unless you call! 

 

(757) 410-9263

 

Chapter 7 Introduction

Personal Bankruptcy typically involves two types; a Chapter 7 Petition or a Chapter 13 Petition.  The Chapter 7 Petition is what most folks likely consider as "Bankruptcy".  The outcome of a Chapter 7 is to have your unsecured, non-priority, debt discharged.  Please understand that, typically, Student Loans, support payments and taxes are not dischargeable in bankruptcy. 

A Chapter 13 Bankruptcy filing tends to be much more complex than a Chapter 7 in that it involves a repayment plan.  In Eastern Virginia your repayment plan may consist of repaying a minimum of 1% of your unsecured debt up to 100%.  The length of the repayment plan will last between 36 and 60 months.  As with most things associated with the law, there are always exceptions, and this is another example.  We'll talk about the length of your repayment plan when we speak more in depth about Chapter 13's.  However, while there is a repayment plan it is (1) based on what you can afford to pay, and (2) includes several provisions that can prove helpful.  For example, with a Chapter 13 Petition you can handle any arrears that you may have, i.e., if you've missed any payments then you can make them up under the Chapter 13 Petition.

I will use the next several postings to talk about the various parts of a normal Chapter 7 Petition.  The topics will follow, hopefully, the following list:

1. Identifying your creditors;
2. Inventorying your property; real property versus personal property;
3. Student Loans;
4. Mandatory counseling classes;
5. The Means Test;
6. I'm a business owner, does that matter?

Additionally, as I develop these topics I may change the sequence or add topics that might be of interest to folks.  I'm going to keep these going during the holidays so make sure that you stay in touch.  Remember, there is help for what may seem like an insurmountable problem.  Don't get discouraged; instead, be proactive and take charge of your path to recovery. 

Wishing each of you the safest and happiest of holidays!  ... once the holiday madness passes, if you would like to talk, please, give us a call....(757) 410-9263!

Our First Date: What to expect!

Ok, so hopefully you have pulled your paperwork together and now you are ready to go out and find a Bankruptcy Attorney (see my earlier post about paperwork).  First, let me address a misconception about Attorneys.

Not all Attorneys charge a consultation fee.  Those that do, from my experience, are simply trying to weed out the serious from the 'just looking for free legal advice.'  Folks must understand that Attorneys primarily earn their living from applying their knowledge and experience.  When that is given away for free - you don't need the Attorney!  Therefore, a free consultation is intended to be used to meet the attorney and see if they are a good fit for the issues that you bring to them.  The free consultation is not intended to answer all your specific questions about how you should answer a traffic ticket, or how to file for divorce or bankruptcy.

Our trip towards filing a Bankruptcy Petition ( the formal document that will be filed with the United States District Court, Eastern District of Virginia, Norfolk Division) for you begins with a FREE consultation.  During that time we'll share - you providing some specifics about your situation and we'll try and provide some answers, such as:

• Are you married? and, will this be a joint or individual filing?
• Do you have a mortgage? How about car loan(s)? and, how about any other secured debt?
• Are you working? What income sources do you have?
• How many dependents do you have?

That is just a small sampling of what we'll discuss.  We really won't talk much about each of your debts and creditors, but will focus primarily on whether or not it appears if you would qualify for a Chapter 7 (Chapter 7 and Chapter 13 are two specific forms of personal Bankruptcy).  My intent with our initial meeting is for you to leave (1) with a solid understanding of what the Bankruptcy process consists of; (2) being comfortable with me as an individual and professional; (3) understanding the potential outcome of a Bankruptcy; and (4) what your next steps are.

Additionally, when you leave the office after our first meeting you will take with you a folder containing:

• A process flowchart of the overall steps included in filing,
• A personal property inventory worksheet,
• Information concerning required counseling (a pre and post filing counseling class is required of each filer - they can be taken online!) that must be completed,
• Our contact information and e-mail address,
• An informational brochure on filing Bankruptcy, and
• A clear understanding of our low fees!

The information that we provide will be applicable regardless of who you have assist you.  My goal when you leave the office is not what you might expect; I truly want you to (1) understand the process and how it applies to you, (2) realize that there is hope, and (3) appreciate that a Bankruptcy really can provide you (and your family) a fresh start.  Now I am human so yes I want your business - but, I want it because you feel comfortable with us and not because you were bowled over with a pushy sales pitch!

Confession Time:  I strive to always be prompt in returning my calls, courteous and respectful of others, professional in all my dealings and to place your interests above all others!  However, I am human, and when and if I mis-step, I am humble enough to apologize!  My personal ambition in life is to be of servitude to others before myself.

Before we meet, you must understand that I have an engineering background so be expecting to be wowed by my mastery of a White Board and and a handful of colored markers!  I'm working on getting some of these up on YouTube (another reason to Like us on Facebook!).

Be looking for my next blog where I will try and simplify the differences between a Chapter 7 Petition and a Chapter 13 Petition, and what determines which one you may file!

Your Credit Score: So what if it drops!

Americans are probably more aware of their individual credit scores now than at any other time in history.  The entire concept of the credit score has more or less morphed into a type of larger than life indicator of financial health.  However, a great credit score actually indicates that you have debt - not that you don't have any!  So why is it that a family with no debt would have a lower credit score than a family with debt?

Keep in mind that the folks who use your credit score are those folks who want to add to your debt load so that they can benefit from the interest payments!

Given that bankruptcy is a means toward a new start - a fresh start - then the fact that your credit score may drop anywhere from 150 -200 points (based on a quick Internet search) may not be the problem we have all come to think.  A fresh start is not intended to put you in a position to get new credit driven debt - but to minimize your use of credit and allow you to live within your means - a cash only existence.

To take this thought further, let's assume that you already own your home (meaning you have a first and maybe even a second mortgage) and even a car loan.  It is very possible to keep all of these things even after filing bankruptcy (a Chapter 13 (more on that later) Bankruptcy will even allow you to catch up on missed payments).  Therefore, is it not fair to say that your credit score - whether high or low - is of less significance since you're not trying to qualify for credit?

Your credit score is important, but let's keep it in perspective!