Ch 7, 13

File Ch 7 for just $125 learn more now. Thanks for visiting!

The numbers game that determines your FICO credit score may be one of the biggest mysteries to mankind and although some of the logic that is used to determine your score may not seem intuitive or fair, it is important to understand which spending behavior will help or kill your credit score.

1. Late payments

That late payments will affect your credit score negatively is fairly obvious. It has been estimated, that a payment that is 30 days past due, can drop your score by 60 points. Even if you pay off the balances, the negative will stay in your report for seven years. Past delinquencies that have since been resolved might still cost you 15 to 20 points. Set up automatic payments so that you will never miss a payment again.

2. High credit card balances

You want to keep your credit card balances low, ideally the outstanding balance should not exceed 30 percent of your total credit limit. The way your score is calculated correlates directly from the balance out to total credit available. That means, that the higher your balance, the lower your score. Some estimates say that you lose 1 point for every percent of your credit limit that you use. It is a good habit to pay off your balances every month. This is especially critical when you apply for a loan such as a mortgage or car loan. Try to pay everything in cash at least 60 days before applying for a loan so that you record looks clean by the time the creditor checks your credit report. If you must have a balance, be sure to keep it under 30 percent of your credit limit.

3. Keep access to a high amount of credit

This may seem counter-intuitive. You do not have to use the credit available to you. But if you only have one credit card a potential lender has a very small data set to determine your spending behavior. If you can responsibly keep a mix of credit cards, a mortgage or car loan or even a student loan, you can boost your credit score.

4. Establish a credit history late

Old credit accounts count more than newer ones in your credit score. A lender can observe certain spending behavior on a credit account that you had for many years, whereas perfect spending behavior on an account you had for two months is not a reliable indicator.

5. Closing credit accounts

Keeping many credit cards you do not need open also seems counter-intuitive but not closing credit card accounts actually helps your credit score. When you transfer balances from high interest credit cards to lower interest accounts do not close the high interest accounts. The available credit, especially when unused, balances your debt to credit limit ratio favorably.

6. Not checking your credit score regularly

Errors on credit reports are not uncommon. It is therefore important that you check your credit report regularly to ensure that nobody has stolen your identity or your spouse has not racked up debt without paying it. This is especially important when you know you will apply for a loan soon. You can order a free credit report from all three leading credit report agencies once a year. Credit scores on the other hand are not free. However it is more important to first check for accuracy in your credit report.

Many insurance companies look to your credit score to determine your eligibility for their insurance plans. This is especially true for home insurance and car insurance policies. Because a bankruptcy filing will impact your credit score negatively and will stay in your credit report for up to ten years, some insurance companies may deny you coverage. There are no rules or regulations that govern so you will need to shop around to find insurance companies that will serve your needs.

Home and car insurance

Even if you are current on your insurance premiums, it is within an insurer’s rights to drop you from their policy after you have filed for bankruptcy. Not all do, but some may. Some insurance companies may not issue a new police or renew an old one if they see that your credit score is low due to a bankruptcy filing or any other reason. The reasons for this are manifold, insurance companies want to prevent claims which typically are higher among the financially troubled who in the past have set their homes on fire to collect on their policy.

But just because they are a few bad apples does not mean everybody has to be punished. Talk to your insurer. If you have never made a claim and have always been current on your premium payment, you should appeal the decline of any renewal. At this point, you should also shop around and see if other insurance companies can offer you better policies.

A growing number of auto insurance companies check the credit of potential and existing policy holders regularly, so bankruptcy can affect your car insurance as well. Instead of denying you insurance coverage, many auto insurance companies may offer policies at much higher premiums.

Health Insurance

Since health insurance is considered an essential living expense, health insurance company policies are not governed by credit ratings. Health insurance companies have their own policies which are typically related to your health and they can deny coverage for matters related to your health. With Health Reform passed, however, no one can be denied health insurance coverage based on their health any longer and by 2014 health insurance will become mandatory for everybody. The ability to obtain health insurance should not be affected by your bankruptcy filing.

Life Insurance

Life insurance companies operate the same way as home or car insurance companies. Based on your credit report, they may drop your life insurance coverage after you have filed for bankruptcy. Life insurance companies are wary of insurance fraud and want to ensure that you can afford your insurance premiums without “overinsuring” yourself. When you do file for bankruptcy while you hold a life insurance policy, Federal Bankruptcy regulations mandate that you can protect up $10,775 of a life insurance policy’s cash value from surrender in a bankruptcy.

Dealing with a constant barrage of debt collectors’ calls can take a toll on you, especially if they get nasty, personal and threatening. As a consumer, however, you have rights and collectors cannot cross the line by intimidating you. The Fair Debt Collection Practices Act (FDCP) was enacted to protect consumers and prevent collectors from implementing abusive, unfair or illegal methods to collect their debt.

Knowing your rights is important to reign in abusive tactics used by collectors. Collectors count on their debtors not knowing their rights and thus continue to get away with illegitimate methods to collect.

Deceitful Identification

If a collector claims to be somebody he is not, such as a law enforcement officer or from a government agency, this is considered to be deceitful and outside of the legitimate bounds of fair debt collection.

Violent Threads

Any threat to use physical force or violence against you or your property and also any libel or other defamatory statement should keep you on high alert. These actions constitute a violation against permissible collection methods.

Confidentiality

Collection agencies cannot discuss your case with outsiders without your consent. Your lawyer or consumer reporting agencies are the only entities that your information can be communicated with.

Accommodation

If it is necessary to communicate often or meet with you, the agency must accommodate you. Collectors cannot call you at any hour or demand to meet where travel distances are unreasonable.

Violation of Professional Boundaries

Collection agencies must not call you at your work place. All calls should give you the flexibility to discuss these personal matters in the privacy of your home.

These are some of the most common violations by debt collection agencies. The FDCPA keeps a close eye to ensure that such practices are not used. If you can demonstrate that any of these violations have occurred, you can press charges for punitive damages.

If you are buried in debt and find yourself fending off debt collectors who harass you around the clock, you are probably tempted to ignore the calls and not pick up the phone. Debt collectors can be nasty and threatening even though you are legally protected from any threads, but if a debtor catches you off guard, it may be difficult to enforce these laws. Avoiding debt collectors, however, will not help you in the long run and may hurt you. There are ways to learn how deal with the dreaded debt collector’s call.

Do not take it personally

When debt collectors go to extremes to collect the money you owe them, they will use any tactic to get paid. They are doing their job, although admittedly a very nasty job. They will find ways to embarrass and even hurt you emotionally. Unfortunately this has been proven to be an effective tactic for them as most people will cave in under such pressure. Learn to keep calm and not take the bait. Do not take their insults personally by insulting them back. Instead, responding in kindness will throw them off.

Do not play tough

Do not threaten collectors with wanting to talk to the supervisor. The truth is that the supervisor will not be on your side since non-paying customers are not always right. You really do not have much leverage and it is better to try to have a productive conversation with the collector who called.

Negotiate

When a collector calls, do not feel intimidated or threatened. Instead, look at it as an opportunity to explain your situation and negotiate a deal. Debt collectors are often amenable to negotiate a settlement deal since getting paid something is still better than losing everything which would be the case in a bankruptcy.

Get it in writing

If you are able to negotiate a deal, be sure to get it in writing. Collectors can be tricky and garnish your wages despite your deal, so it is paramount to have everything in writing. If you do not receive a letter from them, call them to follow up. Reiterate the agreement you have negotiated and enforce that they will hand it to you in writing.

Do not forget that you have rights. The Fair Debt Collection Practices Act (FDCPA) is a government agency that protects consumers from abuse and illegal methods of debt collection.

If you have trouble making your monthly mortgage payments and are already behind, do not delay further action. To save yourself the arduous process and associated loss of foreclosure or filing for bankruptcy, consider a loan modification program. You may qualify for one of the many that are currently offered:

White House / Treasury Loan Modification Program

This program designed by the current administration, is one of the most inclusive loan modification programs to date. It not only addresses the challenges of homeowners who already are facing financial difficulties, but also considers homeowners who are current on their payments but anticipate financial challenges in the future or have lost most of the equity in their homes as a consequence of the housing bubble. For more information: FinancialStability.gov

IndyMac Federal Bank Loan Modification Program

The FDIC took over IndyMac and implemented new extensive loan modification programs for their customers. If your mortgage is held or serviced by IndyMac, you may be eligible for this program.

Federal Housing Finance Agency Loan Modification Program

The supervisory regulator of Fannie Mae and Freddie Mac, the Federal Housing Finance Agency (FHFA) offers loan modification programs to mortgage holders whose mortgage is held or serviced by Fannie Mae or Freddie Mac.

Major US Bank Loan Modification Program

If you do not qualify for any of the mortgage modification programs above, talk to the bank which holds your mortgage. A lender is more amenable to negotiate a loan modification with a debtor than going through the costly motions of a foreclosure. The largest banks are all now offering loan modification programs, sometimes even issuing foreclosure moratoriums to help families avoid foreclosure.

Although a bill passed in the House of Representatives in early 2009 permitting bankruptcy judges to modify mortgages on your primary residence (so-called cramdown legislation), this bill – even after many amendments narrowing the circumstances in which mortgage modification can be applied – did not pass in the Senate, forcing many home-owners into foreclosure. There is, however, a new government program that seeks to mitigate the rapidly growing number of foreclosures. The so-called “Making Home Affordable Program” includes opportunities to modify or refinance your mortgage to make your monthly payments more affordable. It also includes the “Home Affordable Foreclosure Alternatives Program: for homeowners who are interested in a short sale or deed-in-lieu of foreclosure.

If you do end up filing for bankruptcy, depending on whether you are filing for Chapter 13 or 7 Bankruptcy and depending on how much equity you have in your home, you have several options to lower your mortgage payments. Rarely, in some Chapter 13 Bankruptcy cases “Mortgage Stripping” or “Lien Stripping” may be considered. This only applies if you have two mortgages on your home and the home is worth less than the first mortgage. The second mortgage can then be stripped off by filing a Chapter 13 Bankruptcy.

If you have equity on your home, you may ask for forbearance when filing Chapter 7 – a lender is more inclined to force you into foreclosure when significant equity is present. Beware, that in a Chapter 13 Bankruptcy, where your debts are consolidated, your payments may actually increase.

If you don’t have any equity in your home and know your financial situation is only temporary, you can also negotiate a forbearance agreement, where payments are suspended for a period of time, typically for a time frame of six months, to be paid in larger sums in the future. This option is the most cost-effective for the lender.

Because foreclosure is a very expensive proposition to any lender, the lender may be amenable to a loan modification, where the lender can lower the interest or extend the duration of the loan in order to reduce monthly payments. The lender may consider a loan modification in cases where this would cost the lender less than foreclosure proceedings.

The short answer is yes. A bank account levy can be used for collection. The creditor can find your bank and put a bank levy on your bank account if they have received a judgment against you. If a creditor tries to collect a debt and the debtor is unwilling to respond to or communicate with the creditor, the creditor has reason to believe that the debtor has no intention to work with the creditor to pay down or off the debt. Only after the creditor has exhausted all means of collecting the money owed, the creditor can file a judgment against the debtor with the court to collect a debt.

After award of the judgment, the creditor is legally entitled to levy the debtor’s bank account. With the levy, the creditor can seize money from the debtor’s bank account. However, a bank account levy is a one time move to take the current amount at the time of the levy. Each subsequent levy requires a separate order.

In most cases, the creditor can easily find the debtor’s financial institution. The creditor will then issue a writ of execution to the bank. After the bank is served with the writ, it must seize the funds. To make matters worse, most banks charge fees to impose levies on accounts. Depending on the amount in the account, the creditor’s debt can either be completely fulfilled or if the funds are not sufficient, the account will remain frozen until the debt has been paid.

If the debtor has direct deposit for the levied account, the direct deposit will go directly towards the creditor to pay for the debt. Checks associated with this account should not be issued after the account has been levied, as return check fees will be charged.

The debtor can object to a levy within 30 days of a placed levy. The seized funds from levied accounts are held for 21 days before they are actually handed to the creditor. If you can prove that the funds in your levied bank account were actually child-support payments or other exempt funds, you will be refunded the sum of any exempted funds. In most cases you will have to file with your local court to prove money in your account is exempt from being taken.

The idea of bankruptcy protection is precisely to help you get back on your feet and start fresh without the burden of crushing debt. That also means to fulfill your dream of your home.

After your debts have been discharged following your bankruptcy filing, the bankruptcy does not legally prohibit you from buying a home. The barriers to home ownership can be a consequence of your credit rating rather than the mere fact that you have filed for bankruptcy. But even these barriers are surmountable. A typical time frame ranges from 18 to 24 months, but it really depends on your situation. A former creditor or bankruptcy trustee representing your former creditors cannot claim your property after you have successfully bankruptcy filing and discharge.

Build Credit

A bankruptcy filing can stay in your credit report for up to 10 years. But just two years post bankruptcy, your credit score is no longer adversely affected by the bankruptcy filing. Therefore it is really important to build that credit. Be responsible and pay your bills on time. Do not overspend and keep your available credit small so you will not be tempted to overuse credit. You will need good credit to get favorable interest rates for any type of loan, but especially a mortgage. Lenders will look at your spending behavior to determine your creditworthiness and their risk. The lower your credit score, the higher your interest rate will be.

What can you afford?

Make a realistic assessment of what you will be able to comfortably afford. Consider all costs associated with owning a home, not just the mortgage. Condo fees, maintenance costs and property taxes are just a few of those monthly costs which need to be considered in the overall calculation. Also consider what would happen if you or a spouse became unemployed. Choosing a home that is below your means may help you avoid foreclosure or another bankruptcy in the future in case you have unexpected financial problems.

Save for a down payment

A large down payment will yield more favorable interest rates, so it definitely pays to wait until your down payment amount is substantial. Lenders are not only interested in your down payment, but also in the stability of your income and a payment history that assures them you will and afford to make your monthly mortgage payments.

Be aware of suspicious lenders

The mortgage lending industry is very competitive. Do not blindly trust lenders who target people with less than perfect credit. Do your homework and read the fine print. Understand all the hidden costs such as loan fees, escrows for taxes, insurance costs and particularly closing costs which can be expensive. Shop around and compare prices and costs.

Filing for bankruptcy can be one of the most difficult decisions you ever have to make. But you made a sound decision and yes, there is life after bankruptcy. Hopefully, you have learned from your mistakes and can now move on, starting with a blank slate and a chance to rebuild your credit score without falling back into your bad old spending habits. The bankruptcy filing will stay in your credit report for up to ten years and it is up to you to restore it back to what it used to be.

Show restraint

Do not succumb to credit card offers that try to lure you with promotional low or no interest rates. They are part of the problem. Limit yourself to one credit card with a smaller limit of no more than $2000. Be sure that only you have access to it and only use it in emergencies for unexpected big ticket items such as car repairs or urgent home repairs.

Make a budget

Make a monthly budget of what you need and can comfortably afford. If you have a mortgage, student loans and other fixed monthly expenses, calculate how much discretionary spending you will have after making these payments each month. Then make a budget of how much you will need for essentials such as food and household expenses. Set aside a certain amount to deposit into a savings account, even if it is only a small amount. It is a good habit to start. If you find that you are in the red numbers again once you paid all your bills, you will need to downsize to cut costs and afford your life.

Trim the fat

As one of the biggest expenses, the first place to look for downsizing is your mortgage or rent. Maybe your mortgage payments are not within your financial means. If this is the case, consider downsizing to a more affordable home. Smaller mortgage payments make a very big difference in your monthly budget. The other big expense that makes a difference is your car. If you need a car, look at smaller cars with good mileage to reduce your monthly gas bills. Try to save enough money for a 10-20% down payment of the purchase price of the car to lower the interest rate and increase your chances of getting the loan. Also consider dispensing with some tempting, costly but not necessary extras that can add substantially to the cost of a new car. Once you can cut these major costs, you will have more cash available for discretionary spending.

Build your credit

Before you apply for credit again, be sure to save enough for a sizable down payment whether it is for a smaller home or new car. Use your credit card sparingly and deliberately. But most important of all, pay all your bills on time, and in full each month.

Having used credit cards beyond your financial means is most likely what has brought you to consider filing bankruptcy in the first place. The irony of course lies in the fact that you have already entered the vicious cycle of going deeper and deeper into debt to a point where you depend on your credit card for survival and may be forced into bankruptcy as a result. When filing for bankruptcy, a judge may not look favorably upon the excessive use of credit cards, despite the fact that frequent use was not a choice but a necessity.

Not all credit card use is equal

The bankruptcy code section 523 addresses the fact that you had no other option than to charge your credit card for essential goods. This code differentiates between essential and non-essential goods. If you charged non-essential, or “luxury goods” in the amount of $500 or more to your credit card within 90 days prior to filing for bankruptcy, these charges are presumed non-dischargeable. If you purchased these non-essential items within 90 days prior to filing, it would be extremely difficult to defend them, so creditors’ arguments will most likely prevail.

Acting in good faith

Whether you have acted in good faith is a much more difficult argument to make for the creditor. So credit card debts of any amount, incurred at any time prior to filing may be deemed non-dischargeable if the creditor can prove that the debt was incurred under false pretenses. Unless there is hard evidence of fraudulent behavior, the creditor may have a tough time making a convincing argument to prove that you willfully spent money, knowing you will file bankruptcy in the future. If you end up in an argument between your word against the creditor’s word and the creditor files an objection, consider the legal costs of responding and defending such an objection before you are too deep into it.

Credit card as last resort

It is good practice to delay filing for bankruptcy as long as possible following your last use of credit cards. This is the best evidence of acting in good faith. Also be diligent with your outstanding payments, even if you can only make minimum payments. If you see no other option than to use your credit cards for everyday life’s expenses, you know you are heading for bankruptcy and it would be a good idea to contact a bankruptcy lawyer. Once you have taken that step, think twice about using your credit card beyond this point.