Can I Use My Credit Card in Bankruptcy?

The short answer is no.  This is because while you are in bankruptcy you should not be incurring new debt without court permission.  Most of the time a credit card will not issue a card to someone who is in an active bankruptcy case, because they do not want to violate the bankruptcy code and face sanctions from the bankruptcy court.  Furthermore any cards that a debtor has prior to filing the case will be discharged in the bankruptcy case, except under rare exceptions.  Therefore the debtor will not be able to continue to use their cards.  

The entire point of a bankruptcy case is to get a fresh start and to get rid of the debt and allowing a debtor to continue to incur debt while in the bankruptcy case complicates and frustrates this goal.  When preparing to file a bankruptcy case a debtor must take a look at their finances and make sure that they are living within their means and question why they would have a need to continue to spend on credit. 

If you have any questions about bankruptcy, contact the attorneys at Fears Nachawati today. Call 1.866.705.7584 or send an email to fears@fnlawfirm.com for a free consultation.

Chapter 12 Bankruptcy

While many people are familiar with chapters, 7, 11, and 13 another chapter that is available is chapter 12.  A chapter 12 is agricultural and is for “family farmers" or "family fishermen." with "regular annual income."   The chapter 12 allows for farmers and fishermen to reorganize their debts in a reorganization plan to pay all or some of their debt.  The chapter 12 plan is an installment plan over three to five years.  Generally, the plan is for three years unless the court approves longer “for cause." If the plan proposes to pay 100% of child support or alimony if any exist, it must be for five years and must include all of the debtor's disposable income.  A case may not exceed 5 years.

 In order to file for chapter 12 the debtor must meet four criteria when they file the case:

  1. The debtor(s) must be engaged in a farming operation or a commercial fishing operation.
  2. The total debts must not exceed $4,031,575 for a farming operation or $1,868,200 for a fishing operation.
  3. If a family farmer, at least 50%, and if family fisherman at least 80%, of the total debts must be related to the farming or fishing operation.
  4. More than 50% of the gross income of the individual or the husband and wife for the preceding tax year must have come from the farming or commercial fishing operation.
 
Chapter 12 is less complicated, and less expensive than chapter 11, but allows for more debt than a chapter 13 because Chapter 13 is designed for wage earners who have smaller debts than those facing farmers. In chapter 12, Congress sought to combine the features of the Bankruptcy Code which can provide a framework for successful family farmer and fisherman reorganizations.
The only a family farmer or fisherman with "regular annual income" may file chapter 12, but the chapter 12 makes allowance farmers and fishermen whose income is seasonal. 
 
If you have any questions about bankruptcy, contact the attorneys at Fears Nachawati today. Call 1.866.705.7584 or send an email to fears@fnlawfirm.com for a free consultation.
 

Bankruptcy Filing Fees

When a debtor files for bankruptcy the court charges a filing fee to file the case.  For a chapter 7 case the courts charge a $245 case filing fee, a $75 miscellaneous administrative fee, and a $15 trustee surcharge.  These fees are paid to the clerk when the case is filed. Although with a chapter 7 case a debtor can request to pay the filing fee in installments or have the fee waived. 

If the Debtor is asks the court to pay the fee in installments the number of installments is limited to four, and the final payment must be made no later than 120 days after the case is filed.  For cause shown, the court may extend the deadline, but the last payment then must be paid not later than 180 days after the case is filed.  Failure to pay these fees may result in the case being dismissed. 
 
If the debtor's is unable to pay in installments and the income is less than 150% of the poverty level, the court may waive the filing fee. 
 
For a chapter 13 case the courts charge a $235 case filing fee and a $75 miscellaneous administrative fee.  The debtor may also request to pay these fees in installments or for the fee to be waived, however the Debtor must also make a chapter 13 plan payments so the Debtor must have sufficient income to pay the plan to remain in the case. 
 
If you have any questions about  Bankruptcy or filing fees, contact the attorneys at Fears Nachawati today. Call 1.866.705.7584 or send an email to fears@fnlawfirm.com for a free consultation.

What is a Chapter 7?

A chapter 7 is a liquidation chapter. This means that a chapter 7 Trustee can sell or liquidate property to pay off your creditors. A chapter 7 Trustee can only sell property that is non-exempt. Most Debtors will find that all of their property is exempt.  Each state has its own exemption laws and some states opt into the federal exemptions. You should contact an attorney to discuss the exemptions that will apply in your case.  Generally, the debtor’s house, car, household furniture, electronics and pets will all be exempt. 
 
If there are no assets then a chapter 7 Trustee will issue a report to the court stating that they did not liquidate any property.  Then the case will proceed to discharge and be closed. If a Trustee does determine that there are assets to sell he will file a notice with the court and the creditors and proceed to sell the assets. The Debtor will receive a discharge but the case will not close until the assets have been sold and creditors have been paid in whole or in part.
 
In order to initiate a chapter 7 case a debtor files a petition with the bankruptcy court for the area the debtor lives.  In addition to the petition, the debtor must also file schedules of assets and liabilities; a schedule of current income and expenses and a statement of financial affairs
 
 After the case is filed the debtor must also provide a copy of the tax return for the most recent tax year to the chapter 7 Trustee assigned to the case. These must be sent 7 days prior to the 341 meeting or the case may be dismissed.  Debtors whose debts are primarily consumer debt have additional requirements. They must file: a certificate of credit counseling and all pay stubs if any received in the 60 days before filing. 
 
If you have any questions about Chapter 7 or Chapter 13 Bankruptcy, contact the attorneys at Fears Nachawati today. Call 1.866.705.7584 or send an email to fears@fnlawfirm.com for a free consultation.
 

Credit Scores (Part 2)

In part two of our blog on credit scores, we will discuss how to rebuild your credit score after completing a bankruptcy.

 
While the filing of bankruptcy places a negative report on your credit, rebuilding your credit rating after completing a bankruptcy is a manageable task.  Once completing a bankruptcy, the debtor’s credit report will not reflect a positive credit history, which makes up the largest influence on the overall credit score.  Also included in credit history, is the public record of filing bankruptcy.
One method of keeping at least some positive credit history after completing a bankruptcy is reaffirming debts during a Chapter 7.  In the typical case, debtors have the option of reaffirming their secured debts, including mortgages, car notes, and debts secured by other property such as furniture or electronics.  After reaffirming those debts, the terms essentially stay in place as if they were not including in the bankruptcy.  The payment history for reaffirmed debts should continue to reflect the payments made prior to, and after, the bankruptcy has been completed.
 
Even if there are reaffirmed debts after a bankruptcy, debtors will need to establish a positive credit history to help rebuild their credit after the completion of their case.  One method of establishing a positive credit history is to open, and use, a credit card after discharge.  While many debtors believe they will be unable to qualify for a credit card after bankruptcy, they will likely get inundated with credit card offers soon after their discharge.  Although there is generally a negative perception to one’s ability to maintain credit with a bankruptcy on their record, many lenders will offer credit to recent bankruptcy filers because their debt has likely been eliminated and they are ineligible for another discharge for eight years.  
 
It is important to note that any credit cards obtained after a recent discharge will likely come with unfavorable terms and high interest rates.  Accordingly, it is generally considered the better practice to open one or two secured credit credits after bankruptcy.  Secured credit cards work like regular credit cards but require a security deposit to open which generally range between $500-$1,500.  The deposit typically becomes the credit limit for the card.  As with unsecured credit cards, each offer varying terms and differing interest rates.  When using the card to establish and build credit, it is important to use the card each month and pay off the entire balance.  Prior to signing up for a secured credit card, you will want to ensure the issuer reports to all three major credit bureaus.  After a period of making regular payments on time, you will eventually qualify for an unsecured credit card at near market terms.
 
After building a positive credit history through the use of credit cards, you can eventually look to purchase a car or even a house.  Federal Housing Administration (“FHA”) loans are available to former debtors after 2 years from a Chapter 7 discharge.  In addition, FHA loans may be obtained during a Chapter 13 after one year of timely plan payments.  These timelines may be adjusted if the borrower provides an explanation of extenuating circumstances which led to the bankruptcy filing along with their application for the FHA loan.
 
When working to reestablish your credit and build a favorable credit score, it is important to continue to monitor your credit report for errors and inconsistencies.  While there are Credit Repair companies willing to assist, these companies are generally perceived as a scam.  Disputes to information on the credit report can be done effectively on a “Do-it-Yourself” basis.  Most disputes can be completed online at through the websites for the three major credit reporting companies.
 
GUIDELINE FOR IMPROVING CREDIT
 
Below is a suggestion for steps to take following bankruptcy to rebuild credit:
 
1) Get a Credit Report and Check Your Score
 
Credit reports can be obtained for free from each agency once per year.  After completing a bankruptcy, it is important to review the credit report to check for any errors.  Make sure debts which were discharged are reflected correctly.  Also ensure that any debts which were reaffirmed continue to show the credit history.  Dispute any inconsistencies with the credit agencies.  
 
2) Open a Bank Account
 
If you do not already have a checking or savings account, open a new account.  Get an account that allows automatic bill pay and set it up to prevent missed or late payments.
 
3) Apply for a Secured Credit Card
 
Although you will receive offers for unsecured credit cards shortly after completing bankruptcy, secured credit cards will likely provide better terms and lower limits which should help prevent falling back into debt.  The credit limit on secured credit cards is generally the deposit required to open the account.
 
4) Pay Off the Balance Every Month
 
Make sure to use the card to make small purchases every month.  Having an open credit card without any usage does not help build credit.  It is also important to pay the balance in full on time each month.  The amount of debt owed makes up a large portion of the credit score.  Because the credit limit is likely to be small when opening secured credit cards, it is best to not leave running balances on the cards from month to month.  Paying off the balance in full also prevents accruing interest.
 
5) Continue to Monitor Your Credit
 
Continue to pull a credit report and monitor for inconsistencies.  Make sure any new accounts are showing their timely payments and continue to dispute any incorrect information.  As previously mentioned, you are entitled to one free credit report per agency per year.  It is best to spread these free reports over the year and obtain a report every 3-4 months from one agency at a time.

If you have any questions about Chapter 7 or Chapter 13 Bankruptcy, contact the attorneys at Fears Nachawati today. Call 1.866.705.7584 or send an email to fears@fnlawfirm.com for a free consultation.

Credit Scores (Part 1)

In this series on Credit Scores, I will discuss the various types of credit reports and the factors which influence your credit score.  Credit reports consist of detailed information regarding an individual’s current and past financial obligations.  Credit scores are essentially a numerical grade of the information contained within the credit report.  These scores are used by credit card issuers, auto lenders, mortgage companies, and other lenders to judge the applicants financial responsibility prior to issuing credit. Remember you can obtain your free credit report from each agency one time per year at www.annualcreditreport.com.  Contact the attorneys at Fears Nachawati with any questions. 

 
TYPES OF CREDIT SCORES
  1. FICO Scores - FICO (otherwise known as the Fair Isaac Corporation), created the first credit scores in the 1950s. Since their creation, FICO scores remain the most widely used scoring model by lenders with over an estimated 90 percent of the market share in 2010 of scores sold to firm for use in credit related decisions.  Although there are different FICO scoring models, the scores generally range from 300 to 850.
  1. Credit Reporting Agency Scores - Credit Reporting Agencies (Equifax, Experian and TransUnion) each utilize their own scoring model, which causes scores to vary among the three main agencies.  These scores were originally created to predict performance on credit obligations.  However, today these scores are primarily used as educational scores for consumers.  Each agency uses differing ranges of scores.  For example:
    • Equifax’s Credit Score ranges from 280 to 850.

    • Experian Plus Score ranges from 330-830.

    • TransUnion TransRisk New Account Score ranges from 300-850.

  1. VantageScore - VantageScore is produced by VantageScore LLC, which is a joint venture of the three credit reporting agencies.  It was developed as a competitor to FICO. VantageScore results range on a scale from 501-990.
CALCULATING THE CREDIT SCORE
 
While there are multiple credit scores, as noted above, the credit score of primary concern is the FICO score.  The FICO score is generally based on five categories, each of which are weighted to have a varying impact on the overall score.  These categories, sorted by overall importance, are:
  • -Payment History (35%)
Credit payment history is one of the most important factors in a FICO score.  Lenders, who want to know whether you’ve paid past credit accounts on time, place a heavy reliance on payment history.  While a few late payments may not have a major impact on the credit score, numerous late payments, or a history of routinely late payments, will significantly drop the credit score.  FICO specifically looks at how late the payments were made, how much was owed, how recently the late payments occurred, and how many late payments are on the account.  Typically, late payments are reported as either 30 days late, 60 days late, 90 days late, 120 days late, 150 days late, or a charge off.  It is important to note that when a debt is “charged off,” it does not mean that debt is no longer owed.
 
Account types considered for payment history include credit cards, retail accounts (i.e. department store credit cards), installment loans, finance company accounts, and mortgage loans.  Public records and collection items also fall under the payment history category, which include the filing of bankruptcy.  Paying accounts on time, or a good track record on most of your accounts, will have a positive influence and increase your credit score.
 
  • Amounts Owed (30%)
The second leading influence on credit scores is the amount of debt owed on specific accounts.  Credit scores are affected by the number of accounts you have with balances.  In addition, the proportion of credit limits utilized will affect the credit score as well.  For example, when someone is approaching their credit limit on a card, this may indicated that they are overextended and more likely to make late or missed payments.
  • Length of Credit History (15%)
As the category suggests, the length of time your credit account has been open influences your credit score.  Having numerous recently opened accounts will negatively impact your score.  In addition, the length of time from your last activity on an account may also lower your score.
 
  • Types of Credit in Use (10%)
Credit scores are effected by total number of open accounts you have and the overall makeup of that mix of credit.  It is not necessary to have each type of credit account considered to establish good credit.  However, it is also important not to open a lot of accounts you do not intend to use.  
  • New Credit (10%)
The number of recently opened accounts will effect the credit score.  Opening multiple credit cards in a short period of time may negatively effect your score.  In addition, running up high balances on recently opened cards will also have a negative impact.  
 
Credit inquires also fall into the New Credit category when determining the credit score.  Checking your credit report will not effect your credit score as long as the report is obtained directly from the credit reporting agency.  Reports from all three may be obtained for free from www.annualcreditreport.com.  Multiple credit inquires from creditors may negatively impact your score.  However, numerous inquires in a short period of time, such as when shopping for a car, are typically treated as a single inquiry and will have little impact on the overall credit score.
 

The Typical Chapter 7 Timeline

 A lot of my clients have not previously filed for bankruptcy.  One of the most common questions is gaining an understanding of the general timeline and process of your typical Chapter 7 Bankruptcy.  In general, Chapter 7 is the quickest bankruptcy to complete.  The typical Chapter 7 case is completed within three to six months of the filing date.  Keep in mind, before you can file a Chapter 7 bankruptcy, you need to complete your pre-filing Credit Counseling Course from a certified credit counseling agency.  You must also qualify for Chapter 7 by passing the Means Test, which will be completed by your attorney and filed as part of your petition and schedules.

 
After your case is filed, the Court will assign a Trustee to your case and schedule the Section 341 Meeting, otherwise known as the Meeting of Creditors.  This meeting generally takes place around 30 days after the case was filed.  It will be held by the Trustee assigned to your case.  All of your creditors are invited to attend the meeting, however, creditors rarely attend.  At the meeting, you will discuss the schedules filed in your case and provide a brief explanation on what caused you to file for bankruptcy.  These meetings typically last 10 minutes.
 
Creditors have 60 days from the completion of the Meeting of Creditors to file an objection to discharge.  Assuming there are no objections, you should receive your Discharge Order roughly 60 days after your Meeting of Creditors.  Once the Discharge is entered by the Court, your case will be closed and your Bankruptcy will be completed.  Please see our series on rebuilding credit after your bankruptcy for further discussion of how bankruptcy affects your credit. If you have any questions about Chapter 7 or Chapter 13 Bankruptcy, contact the attorneys at Fears Nachawati today. Call 1.866.705.7584 or send an email to fears@fnlawfirm.com for a free consultation.
 

Will I Lose My Property if I File Bankruptcy?

Many clients I meet with are concerned that they will have to surrender their house and car if they file bankruptcy.  As long as you can afford to maintain the payments on the mortgage and car note, you will not lose either in a bankruptcy filing.  Most states provide exemptions for your house and car which allow additional protection for these assets.

In addition, for those who have fallen behind on mortgage or car payments, Bankruptcy may actually provide a favorable option to keep these assets and catch up on payments over time.  A Chapter 13 Bankruptcy, which typically takes 36-60 months to complete, places debtors on a payment plan which commits their disposable income to their creditors.  This is beneficial for debtors who experienced a temporary setback, just as a loss of job, and needs additional time to catch up on car payments or mortgage arrears.  In the Chapter 13, the arrears are spread out over the length of the bankruptcy plan, providing a manageable payment arrangement as opposed to trying to catch up in one lump sum.  Keep in mind that you are still responsible to maintaining regular monthly payment to the mortgage or car creditor during the bankruptcy in the event these are listed as a pay direct obligation and the monthly payments are not part of your bankruptcy plan, which varies from district to district. If you have questions regarding your assets, exemptions, or Chapter 13 payment plans, contact an attorney today at 866-705-7584 or send an email to fears@fnlawfirm.com.

 

Do I Have to Include My Spouse in My Bankruptcy?

In the event you brought significant debt into your marriage which you incurred before you were married, certain states will consider that your separate debt, including Texas.  If your spouse is not liable for your debt, such as it was incurred before the wedding, or they did not co-sign for the debt, an individual bankruptcy may be an option.  Married debtors are able to file both Chapter 7 and Chapter 13 Bankruptcy individually.  However, your spouse’s income may still influence which Chapter of Bankruptcy you ultimately file.  Keep in mind that all household income, which includes your spouse, is used to determine your eligibility for bankruptcy.  In the event you do file bankruptcy individually, your filing will not affect your spouse’s individual credit rating.  This is a common concern for debtors seeking to file individually.  However, joint debts will still include a bankruptcy indication on your spouse’s credit report.

 
If you have any questions about Chapter 7 or Chapter 13 Bankruptcy, contact the attorneys at Fears Nachawati today. Call 1.866.705.7584 or send an email to fears@fnlawfirm.com for a free consultation. 
 

What If I Don't Qualify for Chapter 7 Bankruptcy

In order to file Chapter 7 Bankruptcy, you will need to complete and pass a Means Test, which is filed as part of your bankruptcy paperwork with the Court.  In general, the Means Test takes a six month look at your income and compares that with the median income for a similar family in your state.  If you earn more than the median income, minus allowable expenses, and show enough disposable income to pay back your creditors while maintaining a minimal standard of living, you may not qualify for a Chapter 7 bankruptcy.  However, this does not mean you cannot utilize the protection of the bankruptcy court to help you resolve your financial difficulty.

In the event you do not qualify for a Chapter 7 Bankruptcy, you may still qualify for a Chapter 13 Bankruptcy.  Under Chapter 13, your attorney will calculate a payment plan, which generally ranges from 36-60 months, to provide payments to your creditors in line with your budget.  At the completion of your bankruptcy plan, you are entitled to a discharge of the remaining debt, subject to certain restrictions.  Your bankruptcy plan may only provide for a return of a certain percentage of your unsecured debt, such as medical bills and credit cards.  In the event there is a portion of this debt remaining, it is subject to discharge at the end of the case.  While Chapter 13 takes longer to complete than a Chapter 7, you are still protected from collection efforts, foreclosure, repossession, and lawsuits while you are in an active bankruptcy.  Although you will be placed on a budget, you will have peace of mind by being protected from your creditors while maintaining a manageable payment plan to help get you on the right financial path.

If you have any questions about Chapter 7 or Chapter 13 Bankruptcy, contact the attorneys at Fears Nachawati today. Call 1.866.705.7584 or send an email to fears@fnlawfirm.com for a free consultation.