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.

Property: Is it Real or is it Personal?

A key aspect of Bankruptcy is determining what you owe and what you own.  Usually, what you owe is fairly simple because it seems like whichever way you turn they're there just waiting to tell you what you owe them!  Unfortunately, what you own, while not complicated, may take a little time.

First - property to typically broken into two categories, Real and Personal.  In Law School I heard that an easy way to understand what Real Property is if you can move it it's likely Personal Property - everything else is Real Property.

The formal definitions are that Personal Property is any movable or intangible thing that is subject to ownership and not classified as Real Property.  Real Property is Land and anything growing on, attached to, or erected on it, excluding anything that may be severed without injury to the land.

In every day Americana and in the context of Bankruptcy Real Property is the home you live in, and Personal Property consists of what you would consider your personal possessions.  Real Property is easily inventoried, however, Personal Property make take a little bit of time.

It is important that you capture the extent of your belongings, from socks to lawn mowers.  The easiest way that I have found to do this is approach the task room by room.  Start in the kitchen and develop a list of the pots and pans, silverware, furniture, etc.  Keep in mind that the stove and dishwasher likely came with the house and are part of your Real Property.  Then keep the process moving room by room.

We developed a spreadsheet that provides a handy format for capturing the list.  Once you have the list then you will need to place a value to your property.  This is the replacement value - what you could buy it for from a retail vendor considering its condition and age.

Keep in mind that stocks and bonds, insurance policies, jewelry, cars, collectables, etc., are all considered Personal Property.  Tax Returns are also required to be listed.

If you are looking to start off the New Year with the resolution of getting your finances under control, give us a call today to set an appointment for your FREE consultation.

757-410-9263

Visit our web site at

http://www.KDBLawFirm.com

Be safe, be blessed and be in control!

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!

I need to file; What records do I need?

Now that you have decided that you both (1) need to file Bankruptcy, and (2) want to file, you probably want to start doing something productive towards that goal.  Therefore, go ahead and start gathering the following which you will need to provide to your Bankruptcy Attorney:

1. Last fiscal year's Federal and State Tax Returns and the associated W-2's.  If you don't have your returns then go to the IRS website and request a copy of your TAX Transcript.
2. Copies of your pay stubs for the last 6 months.  We do not count the month in which you plan to file, so if you're planning on filing in January, then December is month 1, November month 2, etc., up to #6.
3. Collect all of the bills that you are getting from your creditors.  The petition will list the creditors by Name, Address, Account Number and Amount.  A good way to capture the information is from the monthly statements or bills.
4. If you have a Whole Life Insurance Policy (meaning that it has cash value TODAY), then you will need to get a statement as to the current cash value of the policy.  If your insurance is through work, then typically it will be a Term Policy (meaning it simply provides a cash pay-out in the event of your death, but you cannot make a loan against its cash value).
5. If you own your home, you'll need a copy of a current mortgage statement.
6. If you have loans for your vehicles, go to the DMV website and obtain the VEHICLE Transcript for each vehicle (NOT your driver's transcript). 
7. If you have had any vehicles, homes or other property repossessed or liens placed against them then having the associated court documents handy will be helpful.

Organization is key!  To truly take advantage of the opportunities that Bankruptcy presents you means that you must take control of the process. Knowing what documents you have and where they are can go a long way towards simplifying the overall process and facilitating the discharge.  What I have found useful is a 1-2 inch 3-ring binder with dividers (Taxes; Pay Stubs; Bills; Car Info; House Info; Insurance; Questions for the Attorney; etc.).

Now that you are gathering together this information and providing some organization to it, it's time to get a better idea as to what is involved in this thing called Bankruptcy.  Before you actually meet or start interviewing prospective attorney's you'll want to have a better understanding of what the actual process is - we'll take the next several postings to talk about the process - what is actually involved in filing a Bankruptcy Petition.  Click over to my website and you'll see a comprehensive flowchart detailing the many steps involved.  Before we start peeling back what is involved in filing, there is one more bit of information that you need to know.

The next significant event after actually filing will be the Meeting of Creditors, or 341 Hearing.  We'll talk more about this later but for now just understand that it is a mandatory hearing at which you, and your spouse if they filed also, will be placed under oath and questioned by the Trustee.  This is not an interrogation, but primarily an informational hearing that the Trustee uses to clear up any outstanding issues and/or questions.  Right now, just know that you will need a Government issued photo ID card and your Social Security Card for identification purposes at the Hearing.  If you don't have your Social Security Card make sure that you tell your Attorney early on because there are alternatives!

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!