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.

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.
 

Facebook Friends May Affect Credit Worthiness

Most Facebookers (noun. A person using the social networking website Facebook) know that “friending” someone can enhance or soil a personal reputation. Companies use social media regularly as part of the hiring process. A person’s online reputation may be the difference between getting hired and losing a job opportunity.

Recently it was discovered that Facebook patented technology that could allow lenders to use a borrower's social network to determine whether he or she is a good credit risk.
 
The technology averages the credit ratings of the borrower’s Facebook friends and provides this score to a lender for consideration of the borrower’s credit application. The patent states: “If the average credit rating of these members is at least a minimum credit score, the lender continues to process the loan application. Otherwise, the loan application is rejected.” 
 
This is the ultimate example of “guilt by association” that your mother always warned you about.
 
Facebook has not commented regarding this technology, and it is not clear whether it will ever be used. The federal Equal Credit Opportunity Act strictly regulates what criteria creditors can use when deciding on a loan -- things like income, expenses, debts and credit history determine creditworthiness.
 
For now, it may be prudent to consider the possible implications (and future risks) of friending someone on Facebook. That’s not just good advice -- it could make a huge difference to your future financial success.
 
If you are considering filing for bankruptcy please call the experienced attorneys at Fears | Nachawati Law Firm to set up a free consultation. Call 1.866.705.7584 or send an email to fears@fnlawfirm.com.
 

Simple Guide to Rebuilding Your Credit after Bankruptcy: Part Two

Note: This article is a continuation from Part One of the Simple Guide to Rebuilding Your Credit after Bankruptcy.

Six Months after Discharge
  • Apply for an unsecured credit card. An internet search will help in your research to find unsecured cards for individuals with a recent bankruptcy discharge. If you are declined, call the company immediately and request a reconsideration. Charge on this card monthly, but no more than $100 on this card, ever. Pay this card off completely every month as soon as you get the bill.
  • Apply for a gas or retail store card. Gas and retail cards typically don't require applicants to have good credit and, in fact, cater to folks with blemished credit.
One Year after Discharge 
  • When your secured loan at the credit union ends, request an unsecured loan between $1,000 and $2,000. You should also discuss options for an unsecured credit card through the credit union.
  • Obtain new credit bureau reports from http://www.annualcreditreport.com and review these reports for accuracy. It is surprising how often discharged debts can “magically” reappear on an individual’s credit report.
  • A new vehicle purchase should be put off until at least one year after your bankruptcy discharge. A credit score can recover quickly after bankruptcy, and many captive finance companies (e.g. Ford Motor Credit) require both a reasonable credit score and recent history of on-time payments. A new vehicle loan is a major credit purchase, and on-time payments will propel your credit score upwards and demonstrate responsible management of significant credit. 
Two Years after Discharge
  • Obtain new credit bureau reports from http://www.annualcreditreport.com. Review these reports for accuracy. Many bankruptcy debtors are able to obtain an above-average or even excellent credit score within two years after bankruptcy.
  • A home purchase is available to many debtors two years after a bankruptcy discharge. Most government-backed loans require a two year “seasoning” after a bankruptcy discharge. Speaking with your credit union about their loan products is a good first step in the home purchase process.

If you are considering filing for bankruptcy please call the experienced attorneys at Fears | Nachawati Law Firm to set up a free consultation. Call 1.866.705.7584 or send an email to fears@fnlawfirm.com.

Simple Guide to Rebuilding Your Credit after Bankruptcy: Part One

This is a simple guide for rebuilding your credit after a bankruptcy discharge. Recovering from the effects of bankruptcy takes time and attention. This guide suggests a basic 24 month timeline for rebuilding credit.

 
T minus One
Before your bankruptcy case is discharged, be sure to review your bankruptcy schedules and consider how your financial situation may have changed. It is very important to understand how your finances will be impacted by bankruptcy court’s discharge order. Some questions to ask are:
1.Which debts are discharged?
2.Are any other debtors impacted by this discharge (such as friends or family)?
3.Which debts are not discharged?
4.Do any liens survive the discharge?
5.Has the bankruptcy court avoided any liens on secured property (or judgment liens)?
6.Have I discharged my personal obligation to pay on a secured debt, but a lien survives?
 
At this point it is critical to have a clear and complete knowledge of who and how much you owe. Any debts that survive the bankruptcy must be paid on-time.
 
Immediately after Discharge
Congratulations! Rebuilding your credit begins now.
  • Collect all your bankruptcy paperwork, including a complete copy of your bankruptcy petition, schedules, and discharge order, and put these documents in a safe place.
  • Sign up for a three bureau credit monitoring service. You don’t want any surprises popping up on your credit. 
  • Obtain a copy of your credit report from each of the main credit reporting bureaus: Transunion, Experian, and Equifax. One free report from each of these bureaus is available every twelve months from http://www.annualcreditreport.com
  • Review each credit report and identify every debt that was discharged by your bankruptcy case. Each of these debts should be noted as:
    • Zero Balance;
    • Included in Bankruptcy; and
    • Current

It may be necessary to file a dispute with the credit bureau to ensure that the discharged debts are reported accurately. The credit bureaus are obligated to report back to you within thirty days and send a new, updated copy of your credit report.

  • Apply for a secured credit card that will “graduate” to an unsecured card within 12 months. Note that not all secured cards graduate. Secure this card with a minimum deposit of $500. Charge on this card monthly, but no more than $100 on this card, ever. Pay this card off completely every month as soon as you get the bill.
  • Go to your nearest credit union and open a new bank account. You may want to consider direct deposit and automatic bill pay options.
  • Open a one year / $1,000 secured loan at the credit union. The bank will place your $1,000 into an interest bearing account. Make your payment every month on-time. 
More to come in the next post.
 
If you are considering filing for bankruptcy please call the experienced attorneys at Fears | Nachawati Law Firm to set up a free consultation. Call 1.866.705.7584 or send an email to fears@fnlawfirm.com.

The First Step to Credit Recovery after Bankruptcy

Bankruptcy offers debtors a fresh financial start. Unfortunately, many debtors avoid rebuilding their credit profiles after bankruptcy. These debtors believe that credit is dangerous and should be avoided.

Responsible use of credit is an important part of personal finance. A good credit score is necessary to purchase a house or car, or qualify for a bank loan or credit card. Aside from credit applications, credit scores are also used by employers during the hiring process, by car rentals, and by landlords. In other words, your credit score is important.

The first step to rebuilding your credit after bankruptcy is to examine your credit reports for errors. Many debtors believe that the bankruptcy court reports information to the credit bureaus. It does not. It is your responsibility to ensure that the information in your credit report is accurate.

There are three major players in the credit reporting world: Trans Union, Experian, and Equifax. The federal law mandates that each credit reporting agency must issue a free credit report to a person once a year upon request. To facilitate this directive, Trans Union, Experian, and Equifax have created a consumer website: https://www.annualcreditreport.com. At this site you can obtain an entirely free credit report without a credit card or on-going financial obligation. A copy of your credit bureau credit score is also available for a nominal fee.

Discharged debts should be listed on your report as “included in bankruptcy” with a balance of “zero.” There should be no collection activity listed on your credit report after the filing date of your bankruptcy case. For instance, the addition of a third party collector after the date you filed bankruptcy violates the bankruptcy automatic stay injunction and should be removed from your credit report. Likewise, overdue payments after the filing date are considered collection actions and should be removed.

Cleaning up your credit report is the first step to credit recovery after your bankruptcy case. In many cases, you can improve his credit score to an average score within a year or two after bankruptcy. However, any stumble along the way will only magnify the bankruptcy filing and keep your credit score low. For this reason it is important to monitor your credit report for errors or any changes at least twice a year.

Rental History Useful for Rebuilding Credit

The average American’s FICO credit score hit an all-time high this past April, nosing in at 692. FICO scores range from 300 to 850. Although judgment of credit scores is often in the eye of the beholder, anything between 700 and 749 is considered a good score, with the best scores ranging 750 and higher.

Debtors emerging from bankruptcy are often far below the national average credit score, so rebuilding and improving is a high priority for many. Fortunately, Experian and TransUnion, two of the country’s largest credit reporting bureaus, are now allowing landlords to report rental payment histories for tenants. According to an article in the Washington Post, “nearly 20 percent of renters saw an increase in their score of 10 points or more after just one month” once rental payments were included in the consumer’s credit profile. An extra 10 points on a credit score can mean the difference between a “poor” credit score and an “average” credit score, which translates to a better interest rate and a lower monthly loan payment.

There are two ways for a landlord to submit rental payments to a credit bureau (a tenant may not self-report). The first is when a landlord agrees to receive payment through a third party service, such as RentTrack. Tenants are able to pay rent through RentTrack via credit card or echeck directly from a bank account. There is a small processing fee for these services.

The second way to report rent payments is when a landlord provides a history of rental payments to the credit bureau, such as through TransUnion’s Resident Credit program.

Another option for consumers to include rental payments in a credit analysis is to use an alternative credit data company such as ECredable. These credit bureaus will verify a tenant’s rental payment history and include this data in a credit report and score, which can be used during a loan application. Under federal credit regulations, the mortgage company is required to consider this information during its loan approval process.

Your bankruptcy discharge will provide a fresh start, but it is up to you to rebuild your credit score. This takes time and attention. Your bankruptcy attorney can help you analyze your situation and make recommendations for improving your score after bankruptcy.

Life After Bankruptcy

Many people consider “bankruptcy” a bad word, and while it is true that it will have an initial negative affect on your credit, for many people it can improve their financial situation over the long term. Many people who consider filing for bankruptcy have found themselves in a situation where they are not able to continue to pay all their debts and still cover the normal expenses. This can mean that many bills have gone unpaid or have been paid late, and the debtors credit score has started to plummet.

The goal of a consumer bankruptcy case is to allow debtors to receive a discharge, which is a permanent injunction that prevents creditors for collecting on their debt. This discharge eliminates much of the debtor’s debt and the only negative reporting the debtor will receive is the bankruptcy filing itself.

While a bankruptcy can be reported on a credit report for up to 10 years, with much of the debt discharged the debt to income ratio will improve, helping repair a debtor’s credit. In many cases a debtor’s overall credit may even be better then where it was just prior to filing in as short of a year of filing.

Many debtors mistakenly think that it will be many years before they can purchase a home or refinance an existing home. In reality, many debtors become eligible in as little as one year.

A debtor can rebuild their credit after a bankruptcy, by maintaining or taking out one or two small secured credit cards and routinely using them and paying them off. Also, payments to reaffirmed debt like a car and mortgage made on time will also help improve the debtors credit score.

The attorneys at Fears | Nachawati will review your credit situation and can help you decide if filing for bankruptcy is right for you. In addition to offering a free consultation they will also provide you with a credit report that provides your credit score. For more information call today 1.866.705.7584 or send an email to fears@fnlawfirm.com.
 

Credit During Bankruptcy

There are many situations when a person needs credit during an open bankruptcy case. Refinancing a home mortgage, redeeming an automobile, or simply applying for a new credit card are circumstances when a debtor needs to obtain credit during bankruptcy. Fortunately, the bankruptcy process allows the debtor to obtain the credit he or she needs while concurrently pursuing a bankruptcy discharge.

When a debtor applies for credit during an open bankruptcy case, the application not only affects the debtor and the creditor, but also concerns the trustee and the bankruptcy court judge. The creditor is concerned that the bankruptcy will interfere with the extension of credit, and the bankruptcy trustee and judge are concerned how the extension of credit will affect the bankruptcy case.

Chapter 7
For Chapter 7 cases, the reach of the bankruptcy court is limited to those assets you owned and debts you owed on the date you filed bankruptcy. The judge does not have jurisdiction on financial matters after the bankruptcy (called “post-petition”). While the bankruptcy court does have jurisdiction to approve or reject a reaffirmation agreement for a pre-petition debt, the court cannot forbid a post-petition extension of credit.

Chapter 13
For Chapter 13 cases, the court has continuing jurisdiction over your finances during the bankruptcy case. A Chapter 13 debtor is required to commit all of his or her disposable income to repay creditors. Any new credit must be approved by the bankruptcy judge since a new payment obligation may impact the Chapter 13 repayment plan.

Vehicle loan
There are no prohibitions to purchasing a vehicle after filing Chapter 7 bankruptcy. Nevertheless, most lenders require the debtor to receive a Chapter 7 discharge prior to extending financing for the vehicle. The main reason for this is the potential for the vehicle and the loan to become involved in litigation. For instance, prior to receiving a discharge, the debtor may convert the case to Chapter 13, or dismiss and re-file, and attempt to modify some terms of the vehicle note (for instance, the change the interest rate or stretch the payment terms).

Obtaining a vehicle during Chapter 13 bankruptcy requires the debtor to show that the vehicle purchase is “necessary to the completion of the Chapter 13 bankruptcy plan.” In plain language, you need the car to get to work to make the money to pay the creditors in the plan. When a vehicle purchase is reasonable and necessary, the courts are generally willing to approve the purchase on credit.

Home loan
Purchasing a home during an open Chapter 13 bankruptcy is difficult, but not impossible. While individual lenders will have different approval guidelines, the debtor must first qualify for an FHA or VA guaranteed home loan, which requires:
1. written approval from the trustee and bankruptcy court for the new credit;
2. a 12 month history of perfect payments on a confirmed bankruptcy plan; and
3. no further derogatory credit entries after the bankruptcy was filed.

Home loan modification under the federal Home Affordable Refinance Program (HAMP) is specifically authorized during Chapter 13 bankruptcy. This modification of a secured debt in bankruptcy requires the permission of the bankruptcy court and trustee, and will require the debtor to amend the Chapter 13 repayment plan. One recent trend is for local courts to require mortgage mediation sessions or other court supervised processes between the debtor and lender before a loan modification may be approved.

Purchasing a home after filing a Chapter 7 bankruptcy requires re-establishing your financial profile by showing a responsible use of credit. Generally, that means two to four years of rebuilding, but in some cases the wait may be shortened. If you are considering filing for bankruptcy, contact the experienced attorneys at Fears | Nachawati with any questions. Call us at 1.866.705.7584 to set up a free consultation.

Two Reasons to File Bankruptcy in January

Ask a consumer bankruptcy attorney the question, “When is the best time to file my bankruptcy case?” and the most likely answer is “Today!” After all, delay in filing a bankruptcy case often causes complications such as lawsuits, garnishments, repossession, and foreclosure. But every case is different, so let’s look at why January may be a good time for some debtors to file bankruptcy.

Tax Debt
Income tax debt for 2013 is not owed until after December 31, 2013. Consequently, if you are expecting to owe a large tax debt for 2013 and want to pay it through a Chapter 13 bankruptcy case, you should wait to file until January 1 (or after. First, take the day off and watch the parades and football games). A Chapter 13 case filed before January 1, 2014 does not include 2013’s tax obligation as a pre-petition debt.

Discharge Holiday Spending Debt
Historically, Americans spend more in the month of December than any other month. According to Gallup.com, Americans spend almost $10 per day more in December for store and online purchases, and in restaurants than January through November averages. That’s an extra $300 that often ends up on a credit card.

Bankruptcy can eliminate credit card debt, but there are some rules. First, high use of credit immediately before filing bankruptcy may draw the attention of the credit card company. The Bankruptcy Code specifically addresses using credit before bankruptcy and it states that credit card purchases for “luxury goods or services” totaling more than $650.00 within 90 days prior to filing a bankruptcy case are presumed non-dischargeable debts and will survive the bankruptcy discharge. HOWEVER, the Bankruptcy Code goes on to state that “luxury goods or services do not include goods or services reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor.”

$50 on a credit card for gas to get to work is not a luxury purchase.
$3,000 for a holiday cruise is a luxury purchase.

If you charge over $650 on your credit card for food, gas, and other necessary items, there is no issue. However, if you do not charge more than $650 on one credit card within 90 days before the bankruptcy filing, there is not presumption of non-dischargeability, and you won’t have to worry about explaining your charges.

CAVEAT: If you have consulted with an attorney and have decided to file bankruptcy, you should stop using your credit cards. Using credit when you have no intention on repaying the debt is fraud and the charges may be excluded from your bankruptcy discharge. It could even lead to a criminal charge! For more information and a free consultation call the experienced attorneys at Fears | Nachawati by calling 1.866.705.7584 or by sending an email to fears@fnlawfirm.com.

Bankruptcy Statements

As a part of your bankruptcy petition you will also attach certain statements. This article will describe the various statements that are common in a consumer bankruptcy case.

The Statement of Financial Affairs
This statement is the big picture the debtor’s finances over the last couple years leading up to the bankruptcy. This document will list your previous year’s income—payments to creditors and family members—and will list information about other transfers or business transactions. This document is extremely detailed and an experienced attorney should help you fill it out. The Trustee in your bankruptcy case will want to make sure that the information is correct and will look for certain transfers that may be an issue in your case.

The Chapter 7 Statement of Intention
The statement of intention, like the name suggests, provides the Debtor’s intentions towards certain debts and contracts in the case. Typically, in a consumer case, only the Debtor’s secured debt and leases are listed. This statement is where the Debtor will inform the court and creditors if they intend to keep and reaffirm a debt or if they intend to surrender the debt.

The Chapter 7 Statement of Current Monthly Income and Means-Test Calculation
Usually, this statement is called the means test; this statement is used to determine if you qualify for a chapter 7 case. The first part of the test averages your previous six months income and compares it to the median income for your household size. If you are below the median the test stops there; being below median means that the bankruptcy code has determined that you have no disposable or extra income that should pay your unsecured creditors. If you are above median you move on to the second part of the text that deducts your expenses from your average income to see how much, if any, disposable income you have remaining. The expenses are tied to the IRS standard expenses but in some areas the bankruptcy code allows you to depart from the standard expenses. If after all the deductions are removed and you have no additional disposable income, you will qualify for a chapter 7 case.

The Chapter 13 Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income
This statement looks nearly identical to the chapter 7 means test but has a few differences. The chapter 13 statement calculates if you qualify for a 3 year plan or a 5 year plan, by comparing your average income to the median income as in chapter 7. If you are below the median income you qualify for a 3 year plan, and if you are above it you qualify for a 5 year plan. The second part of the test as in chapter 7 deducts your expenses from your average income to see how much, if any, disposable income you have remaining. After the test is complete if there is disposable income remaining this amount would be multiplied by 60 (60 Months in a 5 year plan) and is used to determine how much should be paid to your unsecured creditors. The chapter 13 statement is a very complicated statement and is usually reviewed with a great deal of scrutiny. Your attorney will need to go over all of your income and expenses with you to ensure that it is filed correctly.

As with all bankruptcy paperwork, the statements you make are crucial to the success of your case. They are signed under penalty of perjury and must be filled out accurately. For more information and a free consultation, contact the experienced attorneys at Fears | Nachawati by calling 1.866.705.7584 or sending an email to fears@fnlawfirm.com.

Buying a Car During Chapter 13 Bankruptcy

Being in Chapter 13 also means that you must play by the bankruptcy court’s rules. One rule is that you may not use credit during the bankruptcy case. So what happens if you need to replace your vehicle during your bankruptcy case?

Buying with cash
A bankruptcy debtor may buy a car with cash during an open Chapter 13 case without permission from the trustee or bankruptcy court. There is one caveat: if your bankruptcy plan requires you to pay all disposable income to the trustee for the benefit of creditors, you may not use a bonus check, tax refund, or other irregular income unless you have permission from the trustee. As always, it is advisable to speak with your attorney before making a large cash purchase during Chapter 13 bankruptcy.

Getting a loan during Chapter 13 bankruptcy
Financing a car loan during bankruptcy requires a few steps. Since the monthly payment must be approved by the trustee and bankruptcy court, the first step is to ask your attorney what the trustee will ordinarily sanction. First, your attorney will contact the trustee to receive consent. After that, you and your attorney should start the process of obtaining court approval by filing a written motion. Your motion will include the following information:

1. Why you need to purchase a vehicle
2. Are you trading in a vehicle
3. How much you plan to spend
4. How much you will put down and amount financed
5. The approximate amount on monthly payments, term, and interest rate
6. How the new payment will affect your Chapter 13 plan.

The motion will request the court to issue an order allowing you to proceed with the purchase and financing of the vehicle based on the terms outlined in the motion. You may also need to modify your Chapter 13 Plan. In some cases you may be able to reduce the amount paid to unsecured creditors in order to afford the new car payment. Your attorney may also need to amend your bankruptcy schedules.

Once you receive the court’s permission, you can go car shopping! Unless you have already obtained financing, you will need to seek a loan from one of the car dealer’s lending sources. This often requires substantial leverage and influence, so generally dealing with a large dealer is preferable over a smaller dealership. Larger dealerships are often better at overcoming difficult credit issues, such as an open bankruptcy case. It may also be worth a telephone call to the dealership to discuss your situation before actually visiting the lot. If you or a loved one have questions about these issues or are considering filing bankruptcy, please contact the experienced attorneys at Fears | Nachawati for information or a free consultation. Call us at 1.866.705.7584 or send an email to fears@fnlawfirm.com.

Emergency Bankruptcy Petition

An emergency bankruptcy petition is a three page petition with a “mailing matrix”—a list of creditor names and addresses. The naked petition and creditor list are filed with the bankruptcy court along with the necessary filing fee and evidence of completion of consumer credit counseling. The chief benefit of an emergency bankruptcy filing is that the automatic stay goes into effect immediately and stops all creditor collections. This is especially useful if the debtor arrives at his attorney’s office on the eve of a foreclosure sale.

 

To effectively stop a foreclosure sale, the creditor must have notice of the bankruptcy filing. The best way to do this is to fax a copy to the creditor (and/or foreclosure firm, attorney, foreclosure trustee, etc.) and call to confirm receipt. The reason that notice is so important is the distinction courts draw between actions that are “void” and those that are merely “voidable.” Some courts hold that creditor actions in violation of the automatic stay are void, period. Others find some actions voidable. Those later courts sometimes allow a foreclosure sale to stand in a Chapter 7 case. This may occur when the creditor did not have prior knowledge of the bankruptcy case (and is therefore not culpable for an intentional violation of the stay order) and the debtor intends to surrender the property. Obviously, if the foreclosure takes place, the debtor no longer owns the property and must vacate immediately.

 

 After the emergency bankruptcy petition is filed with the bankruptcy court, the debtor has 14 days to file the completed bankruptcy paperwork, including all schedules. See Bankruptcy Rule 1007(c). If the completed bankruptcy petition is not filed with the bankruptcy court within 14 days after the emergency bankruptcy filing, the bankruptcy case could be dismissed.

 

One common problem with emergency petitions is gathering a complete list of creditors. While the debtor has 14 days after filing to identify assets, income, and expenses, the bankruptcy rules require that the debtor list all creditors (as well as collection agencies, co-debtors, interested parties, etc.) at the time the bankruptcy case is initially filed. Debtors filing emergency petitions are under duress and frequently forget creditors. Some legal commentators, including Judge Alan Jaroslovsky, a California bankruptcy court, have pointed out that the debtor’s bankruptcy papers are filed under oath and must contain the whole truth. In his open letter posted on the website for the US Bankruptcy Court for the Northern District of California, Jaroslovsky writes:

 

Whatever your attitude is toward the schedules, you should know that as far as I am concerned they are the sacred text of any bankruptcy filing. There is no excuse for them not being 100% accurate and complete. Disclosure must be made to a fault. The filing of false schedules is a federal felony, and I do not hesitate to recommend prosecution of anyone who knowingly files a false schedule.

 

Filing an emergency bankruptcy petition can stop creditors in their tracks, but it can also present potential problems for the debtor. If you are considering a bankruptcy filing to protect your property, consult with an experienced attorney at Fears | Nachawati as early in the process as possible. As bankruptcy attorneys we can explain how the federal bankruptcy laws can help your family and identify any areas of concern. For more information and a free consultation, contact us at 1.866.705.7584 or send an email to fears@fnlawfirm.com.

If I file bankruptcy will I ever get credit again?

Bankruptcy is no longer the credit “death sentence” that it used to be. While it is true that most people’s credit score takes a hit initially after filing bankruptcy, we find that for most of our clients, about a year or so after filing bankruptcy, their credit scores have improved markedly. The real truth is if you’re at the point of considering bankruptcy, your credit history has probably already hit a rough patch. If you’re already behind on a ton of credit cards, medical bills, and have a repossession or foreclosure, bankruptcy won’t hurt your credit score all that much and can be an invaluable tool to get you back on the right track.

Something to keep in mind is that a large portion of determining credit worthiness depends on outstanding liabilities. After you complete a Chapter 7, a large portion of your liabilities are taken off the books—meaning you have money to spend and not a whole lot of active debt obligations. A good deal of our clients are shocked when they begin to receive credit card and vehicle offers soon after filing bankruptcy, but this is typical. Another reason credit companies will view you as a good risk is because they know that once you file for a Chapter 7 bankruptcy, you can’t do so again for another 8 years.

Yet another way to help quickly rebuild your credit after bankruptcy is by completing a “reaffirmation agreement” on your secured debts after your bankruptcy is filed. This will allow your creditors to continue reporting the status of your secured debts, like a home mortgage or car note. While credit reporting is not the only consideration in reaffirming a debt, it can be a big one and can help rebuild credit.

If you are looking into bankruptcy and want to know more about what bankruptcy can do to get you back on the right track, contact the helpful attorneys at Fears | Nachawati today. Call us at 1.866.705.7584, or send an email to fears@fnlawfirm.com

Know Who You Owe Before You File

It seems obvious that an individual should collect all of his debts and creditor information before filing bankruptcy. However, many debtors arrive at their attorney’s office for an initial consultation with little or no information about their debts. Fortunately, obtaining debt information is not difficult, but it may take a little time and effort.

Credit Report

Your credit report is the best place to start when gathering information about your debts. Some debtors are surprised to learn that there is not one comprehensive credit report kept on an individual, but many reports collected by different agencies. Every consumer credit reporting agency is required by the Federal Fair Credit Reporting Act to provide you with one free copy of your credit report every twelve months. However, collecting a copy of your credit file from each of these agencies is time consuming and pointless for most debtors.

There are three “main” agencies in the consumer credit reporting world: Equifax, Trans Union, and Experian. In order to comply with the federal law, these three agencies have established a website for consumers to quickly obtain an entirely free, no-strings-attached credit report. There is now no need to subscribe to a credit monitoring service or pay money to obtain your credit score. These services are useful in rebuilding credit after bankruptcy, but useless until you receive your discharge.

Obtaining a copy of your credit report is a great step in making a good-faith effort to identify all of your creditors. However, it is important not to rely exclusively on the information contained in the credit reports. Not all creditors report to the credit reporting agencies. Additionally, the information contained in your reports may be inaccurate, outdated, or incomplete.

Mail

The US Postal Service is another excellent source for obtaining debt information. Creditors and collection agencies are very good at sending monthly bills when you owe them money. Collect your mail for a month and you will have a good start on listing your creditors.

Forgotten Debts

A creditor is sometimes forgotten or overlooked when preparing the debtor’s bankruptcy schedules. Even the most diligent individual can occasionally forget a past debt. When this happens, the bankruptcy law offers several remedies:

If an omitted creditor is discovered during the bankruptcy case, the law requires the debtor to file amended schedules and identify the creditor. The debtor has an obligation to ensure all creditors are identified and receive notice of the bankruptcy case. Intentionally failing to list a creditor can cause that debt to be declared non-dischargeable and survive the bankruptcy.

Sometimes even the most diligent debtor will forget a creditor. Things get trickier if the omission is discovered after the bankruptcy case has closed. How the debtor proceeds will depend on the court and the circumstances. In many cases an omitted creditor is considered discharged as a matter of law. Failure to list a creditor means that the creditor did not receive notice of the bankruptcy case and was not given an opportunity to protect its interests during the case. However, if none of the debtor’s assets were distributed to creditors, many bankruptcy courts say the omission did not have any practical effect. In these cases it did not matter that the creditor did not receive notice, the debt is discharged anyway.

Conversely, if an omitted creditor loses the opportunity to receive money through the bankruptcy, the omission matters a great deal. Under these circumstances the failure to include the creditor means the debt cannot be discharged and the debtor is stuck with paying the debt. Intentionally omitting a creditor can also be grounds for a complete denial of bankruptcy discharge, so it is important to include all of your creditors in the bankruptcy process.

There are many myths circulating regarding bankruptcy. One of the most popular myths is that a bankruptcy debtor can pick and choose which debts are included in the bankruptcy discharge. This myth is simply the result of a misunderstanding of the discharge process. When you file bankruptcy you are required to honestly disclose all personal financial information to the best of your ability. That means listing all of your income, expenses, assets, and debts in your bankruptcy schedules. Intentionally failing to list a debt is a very serious matter and the bankruptcy court could deny your discharge if you are less than honest.

In many cases a bankruptcy debtor has a good reason for wanting to continue paying on a debt. The most common reason is to retain property used as security for a loan (e.g. a car or house loan). In bankruptcy, secured property must be paid for or returned. Fortunately, the bankruptcy code allows the debtor to continue paying the secured creditor and keep the property. If you are interested in keeping secured property, discuss your situation with your bankruptcy attorney.

In other cases a debtor may want to continue to pay an unsecured creditor. This is normally the case when the discharge of a debt in bankruptcy will cause financial harm to a co-debtor. For instance, you may owe money to a family member that you want to repay. The bankruptcy discharges the legal obligation to pay the debt, and enjoins the creditor from seeking collection. However, while the bankruptcy prevents your family member from asking for payment, it does not prevent you from making voluntarily payments after the bankruptcy.

The same voluntary payment principle applies to medical bills, credit cards, and any other financial obligation. Voluntary payments do not alter the bankruptcy court’s discharge injunction. A discharged creditor is forever prohibited from taking any action to collect on the discharged debt, including asking for payment, sending a bill or statement, or filing a lawsuit against you.

The Bankruptcy Code provides, “Nothing contained in. . . this section prevents a debtor from voluntarily repaying any debt.” 11 U.S.C. § 524(f). Any debt that is discharged during bankruptcy can be voluntarily repaid. Creditors are still under the court’s prohibition against taking action to collect, but are free to receive payments made voluntarily by the debtor. The term “voluntarily” means free from creditor influence or inducement. A creditor may not send a bill or take any collection action against you.

Voluntary payments do not invalidate the discharge order and do not create a new legal obligation. “Debtors who file under [Chapter 7] can dispose of their post-petition earnings as they choose, including voluntary repayment of debts otherwise dischargeable in bankruptcy.” In re Hellums, 772 F.2d 379, 381 (7th Cir. 1985). You can pay back whomever you wish. If you or a loved one is considering filing bankruptcy, contact the experienced attorneys at Fears | Nachawati Law Firm for a free consultation. Please call us at 1.866.705.7584 or send an email to fears@fnlawfirm.com.
 

Online Payday Loans

Online payday loans can seem like fast, easy money that consumers can take advantage of without leaving their homes. Many times consumers get lured in and find themselves spiraling downward into debt. There are some issues that all consumers should be wary of when borrowing money online.

When you go online and put in your information, the website you are using may not actually be the lender you are borrowing from. Oftentimes websites take the information that you put in and sell it to payday loan lenders. This means that your sensitive information, social security number, bank account number, and phone number, may be sold to a large number of lenders.  Those lenders in turn will call you to try and convince you to sign up for their loan.  Not only are you risking having sensitive information leaking out, but this may also led to a consumer taking out more loans then they can afford to pay back.

Payday loans make money by charging a lot of interest—which can be 115% or higher. The notes are small but the cost from interest and penalties can add up very quickly. Also, pay day loans will offer a consumer the opportunity to refinance and pay it back later, which allows them to charge more fees and interest. The collection companies will also send bogus emails that threaten consumers with criminal charges and lawsuits.

A payday loan is a dischargeable unsecured debt in bankruptcy, however some unscrupulous lenders will use tactics to try and collect the debt.  First of all, sending notice to an online payday loan is difficult; they often never provide you with a contract or a physical address. Since all bankruptcy pleadings work on mailed notice, if you can’t mail them notice they may not stop calling. Furthermore without an address your attorney can’t serve them with notice for violating the automatic stay.

If you are having issues with payday loans or unscrupulous collectors, contact the experienced attorney’s at Fears | Nachawati for a free consolation. You can reach us at 1.866.705.7584 or you can send an email to fears@fnlawfirm.com.

Rebuilding Your Credit Score

After declaring Chapter 7 or Chapter 13 bankruptcy, it’s almost a certainty that you’ll have a long road to travel before you’re back to a rehabilitated credit score. What’s uncertain, however, is how slowly or quickly you’ll travel down that road. Depending on decisions that are within your control, you can significantly shorten the length of time you spend suffering under constrained credit and unusually high interest rates.

 

Sure, some steps to rapidly improving your credit score like paying your bills timely or reviewing your credit score are pretty obvious. However, other choices like opening new, small lines of credit or applying for a new loan may seem counterintuitive, but they can be the right move at the right time.

 

Why expand your credit options in the wake of trouble managing credit? For the responsible debtor, it can be a smart decision. Your credit score is generated in part by a proven history of prompt payments. So, the best way to create that positive credit history is to make it – one timely payment at a time.

 

Rebuilding your credit score is just one of many financial considerations you should address as you think about how to escape your family’s money troubles. There’s plenty more to think about. Fortunately for you, the attorneys at the Dallas law firm of Fears Nachawati can answer your questions and help you head down the right path. Contact us today for your free consultation.

Why It's Important to Explore Your Financial Solutions

Financial difficulties arise from any number of ways. Sometimes, a family faces an “income shock,” such as the loss of a job, substantial pay cut, or unexpected illness or death in the family. In other instances, individuals experience “expense shocks,” like rising living expenses or medical costs. Whatever the reason for the change in your family’s finances, even a relatively minor shift can have major consequences.

 

Just as the causes of these problems vary, the financial solutions you might consider differ, too. First, simply increasing your income or reducing your expenses might do the trick. Second, liquidating some of your assets in order to pay your debts could bring your family’s balance sheet in order. Third, depending on your expectations about the future, you might contact your lender in order to either borrow more money or attempt to renegotiate the terms of your loans. Finally, filing for either Chapter 7 or Chapter 13 bankruptcy might be necessary.

 

Which of these solutions is right for you? For each option, there are very real pros and cons. If a little belt tightening is all you need, it won’t have any affect on your credit score, won’t disrupt your credit relationships, and won’t require any litigation. On the other hand, for many people facing financial difficulties, cutting costs just isn’t enough. Declaring bankruptcy may be your only feasible option. If that’s the case, you’ll need competent, experienced legal professionals to guide you.

 

If you feel like you need help managing your personal finances, talk to the attorneys and dedicated professionals at the law firm of Fears Nachawati. With years of experience, we’ve seen a lot of the problems debtors face – and we’ve helped structure solutions for many clients. Talk to us today to find out what approach is right for you.

We Wish You a Debt-Free Christmas

Before starting your holiday shopping, take a moment and view some sage advice from a “consumer expert:”

http://www.nbc.com/saturday-night-live/video/dont-buy-stuff/27169/

Sure, it’s a funny video, but only because we are laughing at ourselves! Of course you shouldn’t buy stuff you can’t afford. Bad things can happen when you abuse credit, especially if you have over-extended your finances.

This holiday season layaway is making a comeback as a financing option. Layaway was very popular with holiday shoppers years ago, but its popularity diminished as credit became easier to obtain during the 1990’s. The basic idea is that you set aside an item at the store, hold it with a deposit, and make payments over time. Once you have fully paid for the item, you can take it home.

Recently New York Sen. Chuck Schumer issued a public warning that the fees that retailers are charging for layaway purchases can add up to a higher interest rate than any credit card would be allowed to charge.

"These layaway programs are nothing more than hideaways for sky-high interest rates that consumers would never tolerate with a credit card," Schumer told the AP. "The holiday season is supposed to be about giving and not taking, but these layaway programs are taking advantage of people and charging them outrageous interest rates, under the guise of making it easier and more affordable to shop."

A good example of how the typical layaway program works is at Kmart. The retailer offers an 8 week layaway plan that charges an initial $5.00 “Service Fee” for all new layaway contracts. The customer is required to put down a minimum of $15.00 to hold the item, and must make four “easy” payments over the next eight weeks. There is a $10.00 “Cancellation Fee” if you change your mind. If you can’t pay for the item or change your mind, kmart keeps $15.00 and you get nothing.

Bankruptcy debtors are especially susceptible to high interest credit schemes since credit cards are generally not available. However you decide to pay for your holiday purchases, make sure you make a wise choice. If you decide to use layaway or some other form of credit, be sure that you understand the details of the deal. That way you can make an informed decision.

“We wish you a debt-free Christmas and a fresh start New Year!”


 

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"Let the Borrower Beware" When Dealing With Credit Unions

Most credit unions and some banks use “Loanliner” documents. These agreements are standard loan documents developed by CUNA Mutual Group and sold to financial institutions. Over 70% of all credit unions use Loanliner documents for their lending transactions. Included in standard Loanliner lending agreements is a provision in which the borrower agrees that all other loans with the lender are cross-collateralized.

Cross-what?

Cross-collateralization is basically the use of collateral from one loan to secure other loans. The cross-collateralization clause from a recent Loanliner agreement reads: “the security interest also secures any other loans, including any credit card loan, you have now or receive in the future from us and any other amounts you owe us for any reason now or in the future.” Credit unions are fond of using this clause in vehicle loan agreements to secure all other credit union debts with the vehicle. This often causes surprises (and anger) when an unsuspecting credit union member tries to trade-in his car and discovers that the debt on the vehicle includes a personal loan, a line of credit, and credit card balances.

There are a few options if you are faced with a cross-collateralized auto loan. First, you can file a Chapter 13 and cram-down the loan to match your vehicle's value. Any remaining debt is discharged at the end of the Chapter 13 case. During a Chapter 13 case, you can pay a cram-down over three to five years.

During a Chapter 7 case, your attorney can simply ask the credit union to draft a reaffirmation agreement for the vehicle without regard to other debts. You are basically asking the credit union to voluntarily strip off the cross-collateralized loans. If the credit union refuses your request, you have two options: (1) surrender the vehicle and discharge all debts to the credit union; or (2) redeem the vehicle. Redemption is a process exclusive to a Chapter 7 bankruptcy case where the debtor keeps a vehicle by paying the value of the vehicle, not the total debt that is owed. While similar to a Chapter 13 cram-down, redemption differs in that the payment to the secured creditor must be a lump sum. Payments are not permitted.

If you have an auto loan through your local credit union, review the loan paperwork with your attorney for a cross-collateralization clause. Your bankruptcy attorney can discuss your options with you and help arrive at the best financial decision for your family.
 

Credit Card Companies Raise Interest to Record Levels

Credit Card APRs have risen over 20% during the past two years to an all-time high of nearly 15%, according to information CreditCards.com collects from 100 of the nation’s top credit card companies. While the best interest non-introductory rates are a reasonable 7 to 13%, people with bad credit can expect to get stuck with an APR of 24% or higher.

The Credit CARD Act of 2009 stopped card companies from raising interest rates without prior notice and curtailed other abusive practices. The credit card industry has responded by increasing interest rates for future charges and on new customer accounts. Beverly Harzog of Credit.com was quoted by CNNMoney as saying, “Rates are going up because card issuers know that once you get a card they can't raise the rates, so they're raising rates on the front end to ensure they get the revenue from that interest.”

So what are your best options if you have poor credit? First, stay away from cards that charge high fees commonly labeled Acceptance Fee, Participation Fee, or Annual Fee. In some cases a credit card with a $250.00 credit limit may already have $175.00 in fees charged against it!

Instead, take a look at secured credit cards. These cards are available to anyone, including recently discharged bankruptcy debtors. To obtain a secured credit card you must first provide a cash collateral deposit to the bank that becomes your credit line. For example, if you deposit $500 into the account, your credit line is up to $500. If you fail to make monthly payments or honor the terms of the credit agreement, the bank simply closes your account, offsets what it is owed against the deposit, and returns the remaining money to you.

In many cases a secured credit card is reported to the three largest credit reporting bureaus (Equifax, Transunion, and Experian), so the cardholder can improve a credit score significantly with payments over time. Some banks will reward its secured cardholders who pay on time with unsecured increases to the credit line. Bankrate.com maintains a list of banks that issue secured credit cards. Be sure to investigate and compare the fees and interest rates charged by these companies before opening an account.

If you are struggle with paying your bills each month, get out of the vicious cycle of debt by using the federal bankruptcy laws. The bankruptcy discharge can be your ticket to financial stability and savings for the future. Call today and discover how bankruptcy can help you.

Fears & Nachawati Bankruptcy Law Office

4925 Greenville Ave Suite 715, Dallas, TX 75206 (214) 890-0711
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Debt Collection After Bankruptcy

Your bankruptcy discharge prohibits certain creditors from collecting from you personally after your bankruptcy case. So what happens when a creditor contacts you after your discharge? The answer depends on the situation and first involves answering three questions: (1) “Was the debt discharged in bankruptcy?” (2) “Is the collection directed at the discharged debtor?” and (3) Was the creditor notified of the discharge?”

Discharged debts are no longer legally enforceable against the debtor. The discharge injunction is a court order from a federal bankruptcy judge prohibiting creditors from filing lawsuits, sending collection notices, or making collection phone calls. Substantial sanctions may be imposed on a creditor that violates this order. However, some debts are not discharged. It is important to discuss your discharge with your bankruptcy attorney and understand which debts are included in the discharge and which are not. For instance, taxes, student loans, and family support obligations  may not be subject to the discharge. In other cases a debt may be excepted from discharge by the court.

Your discharge only protects you from collection efforts. It does not protect a co-debtor who did not also file bankruptcy, and, as a general rule, it does not protect property that is subject to a lien. Therefore, it is important to understand how your property is affected by the bankruptcy discharge and whether a creditor can seize, repossess, or foreclose on the property after your bankruptcy.

As a practical matter, if a collector does not know about your bankruptcy discharge, the bankruptcy court is not likely to impose sanctions against it. Often a collection attempt can be resolved by informing the collector of the discharge and either providing a copy of the discharge or referring the collector to your attorney. Buying and selling debt is big business, and debts often get passed from collector to collector – even uncollectible debts like those discharged in bankruptcy!

Your bankruptcy discharge injunction applies to the original creditor, collection agencies, attorneys, and any other subsequent collector. Don’t let creditor harassment disturb your peace of mind. If the answer to the above three questions is “Yes, Yes, Yes,” the collector has violated the bankruptcy court’s discharge order. Contact your attorney and discuss the best course of action to stop the harassment.
 

Fears & Nachawati Bankruptcy Law Office

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Six Reasons to Choose Bankruptcy Over a Debt Settlement Program

For a person in financial trouble, examining options can mean the difference between a fresh start and a false start. Before you decide to use a debt settlement program to resolve your debt problem, arm yourself with information and make a wise decision. Below are six reasons that the federal bankruptcy laws may be a better choice than a debt settlement program:

First, the debt settlement process can take many months or even years, and your credit is harmed each month until the debt is settled. On the other hand, negative reporting of debts discharged in bankruptcy ends on the date you filed your bankruptcy case. Discharged debts are reported as “discharged in bankruptcy” with a “zero balance.”

 

Second, debt settlement programs typically settle your debt for 20% to 80. Creditors in most bankruptcy cases are paid nothing.

 

Third, any settled debt will have tax consequences and you may have to pay the IRS. A discharged debt has a special tax exemption and there is no tax liability.

 

Fourth, during the debt settlement process you may be sued, even while you or your representative attempts to settle your debt.  During bankruptcy all lawsuits are prohibited without the express permission of the bankruptcy court.

 

Fifth, many debt settlement companies are disreputable and lack a solid financial basis. You may lose your money and get nothing in return. The bankruptcy process is authorized by the United States Constitution and its laws are written by Congress. Only licensed attorneys admitted to practice in the federal courts are able to represent bankruptcy debtors.

 

Finally, the debt settlement process can take more than a year. The general rule is: the longer you don’t pay, the sweeter the settlement. Creditors are reluctant to accept less than full payment unless they believe that you may file bankruptcy. The typical chapter 7 bankruptcy case takes less than six months.

 

If you are considering a debt settlement program, you owe it to yourself to investigate your options and speak with an experienced bankruptcy attorney. The federal bankruptcy law is a powerful tool to eliminate your debt problem and put you on the road to financial recovery.

 

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Bankruptcy Versus Bad Debt Judgments

Bankruptcy attorneys know that owing a debt that you cannot repay causes the debtor many headaches.  First, there are the collection calls and letters.  These collection actions are meant to harass you into paying something on the debt.  Since the creditor only has a certain number of years to collect before the statute of limitations runs, after a few years the creditor will file a lawsuit against you.  After the creditor obtains a judgment, the statute of limitations clock is reset and the creditor has more time to collect by garnishing wages, or seizing bank accounts or property.  In some cases, the creditor may have twenty years or more to collect on a debt!  During this time fees and interest can increase the balance of the debt many times over.

 

An unpaid debt has serious consequences to your credit report.  Any debt that is more than 90 days delinquent indicates that the individual is experiencing serious financial problems.  A debt stays on your credit report for seven years after the date of the last payment.  Even after the debt drops off your credit report, if the creditor sues you the judgment will be reported for an additional seven years.

 

One of the chief benefits of a bankruptcy discharge is it provides a final resolution of your unpaid financial obligations.  The bankruptcy discharge is a permanent injunction ordered by the bankruptcy court against your creditors forbidding any collection action against you, forever.  The discharge order is extremely powerful and the penalties for a creditor who violates this federal court order can be severe.

 

A report of your bankruptcy case will stay on your consumer credit report for ten years after the date you file bankruptcy (not from the date of your bankruptcy discharge as many believe).  While on the surface a bankruptcy stays on your credit report longer than a bad debt (ten versus seven years), the truth is that a bad debt can linger and significantly harm your credit score for much longer than ten years.  After a bankruptcy your debts are reported as “discharged in bankruptcy” with a balance of “zero.”

 

If you are struggling with debts you cannot afford to pay, consider filing bankruptcy sooner rather than later.  The sooner you discharge your debts, the sooner you can begin your financial recovery.  Delay in filing usually results in further harassment, lawsuits, and difficulties.  Contact an experienced attorney today and discuss your legal options for discharging your debts.

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Know Who You Owe

Bankruptcy attorneys see people from all cross-sections of our population.  Most people have a good understanding of their financial obligations and know who they owe.  Others bring in grocery store bags and boxes full of bills they have collected for months and, in some cases, years.

 

It is very important to identify all of your creditors when you file a bankruptcy.  The Bankruptcy Code requires that you list all of your creditors, even those you want to pay in the future.  You must also make a good-faith effort to list the amount owed to the creditor.

 

There are two excellent sources for discovering who you owe.  The first is the US Postal Service.  Creditors and collection agencies are very good at sending monthly bills when you owe them money.  Collect your mail for a month and you will have a good start on listing your creditors.

 

The second excellent source for creditor information is your credit report.  There are three main consumer credit reporting agencies:

 

Equifax

http://www.equifax.com/

800-685-1111

P.O. Box 740241

Atlanta, GA 30374-0241

 

Experian

http://www.experian.com/

888-397-3742

P.O. Box 2104

Allen, TX 75013

 

Trans Union

http://www.tuc.com/

800-916-8800

P.O. Box 2000

Chester, PA 19022 

 

Each of the above consumer credit reporting agencies are required by federal law to provide one free credit report to you every 12 months.  You can obtain an absolutely free credit report from Equifax, Trans Union, and/or Experian by visiting the following website: https://www.annualcreditreport.com/cra/index.jsp

 

Obtaining a copy of your credit report is a very good step in making a good-faith effort to identify all of your creditors.  However, it is important not to rely exclusively on the information contained in the credit reports.  Not all creditors report to the credit reporting agencies.  Additionally, the information contained in your reports may be inaccurate, outdated, or incomplete. 

 

If you are considering a bankruptcy filing, get a free copy of your credit report and seek legal assistance.  You and your bankruptcy attorney can review your credit report and assess you financial situation.  While bankruptcy isn’t the answer to all financial problems, it can provide powerful relief to people who are buried in debt.

 

Fears & Nachawati Law Offices

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Bank Overdrafts Can Make Financial Trouble Worse

Every day is a new opportunity to make good financial decisions.  If your income has been significantly reduced, one decision that may help is to ensure that your bank does not charge you overdraft fees on your debit card purchases.

 

A new federal banking regulation that took effect July 1, 2010 requires banks to obtain a customer’s consent before charging overdraft fees for debit card purchases whenever there are not sufficient funds to cover those purchases.  Consumers who do not “opt-in” may have their debit cards declined at the cash register. 

 

When an individual suddenly has a reduction of income, it is often difficult to keep track of monthly finances.  This could result in bank overdrafts.  A $5.00 burger and soda could wind up costing $35 or $40 after bank fees are assessed.  In some cases overdraft fees can quickly multiply to hundreds of dollars.  Additionally, some banks charge negative balance fees that may be assessed on a daily basis.  A prolonged negative balance could result in closure of the account and a consumer report to Chex Systems, making it more difficult to open another bank account.

 

Bank fees are avoidable debts that can only complicate a bankruptcy case.  Many debtors in bankruptcy want to maintain a good relationship with their local bank, and consequently will pay the bank debt.  In cases where the debt is not paid, a new bank may not agree to open a new account for you until the debt to your former bank is paid – regardless of whether that debt was discharged in bankruptcy.

 

When money is extremely tight, consider using cash to pay for ordinary purchases like lunch, groceries, or gas.  Cash may be less convenient than using your debit card, but it is easier to keep track of your money and see how it is being spent.

 

If you are experiencing financial difficulties due to a sudden reduction of income, consider opting out of overdraft fees from your bank.  A small inconvenience at the cash register could save you from a considerable headache later.  Your bankruptcy attorney can advise you on additional ways to avoid further difficulties by making to adjustments to your finances.  Consult with an experienced bankruptcy attorney and learn how the federal bankruptcy laws can help you.

Fears & Nachawati Law Offices

4925 Greenville Ave Suite 715, Office 1, Dallas, TX 75206 (214) 890-0711  Google Reviews   |  fnlawfirm.com  |  Directions

 

Is Bankruptcy A Wise Decision?

The decision to file a personal bankruptcy can be emotionally difficult for many individuals.  Sometimes these emotions can make it difficult to accurately assess your financial picture.  If you are facing a financial dilemma, it is a good idea to consult with someone skilled in evaluating your finances and obtain advice.  The answer to a financial problem can vary from reducing spending, to increasing income, to selling assets, and finally to reorganizing or liquidating in bankruptcy. 

 

Filing bankruptcy should always be your last good option.  Unfortunately, good people will make bad decisions when trying to avoid this last good option.  Bankruptcy attorneys see people regularly who have made bad decisions regarding their finances in the hope of avoiding bankruptcy.  These bad decisions always make matters worse.  Some of these bad decisions include:

 

* Borrowing from retirement funds

* Borrowing money from a business, family, or friends

* Misappropriating money, kiting checks, or other illegal activities

* Borrowing from payday loan companies, taking cash advances from credit

* Selling assets that may be protected from creditors

 

It is true that desperate people do desperate things.  When things get desperate, it is time to consult with an experienced bankruptcy attorney and discover how the bankruptcy process can help you and your family.  Bankruptcy is a legal process that is authorized by the Constitution of the United States.  Its laws are drafted by Congress and a federal bankruptcy judge oversees your case along with a trustee appointed by the Department of Justice.

 

One goal of the bankruptcy process is to return the debtor to financial health by relieving the burdens of overwhelming debt.  The great majority of debtors never file bankruptcy again and rebuild their financial lives by making good decisions after the bankruptcy discharge.  For these people, bankruptcy provides a second chance.

 

If you need a second chance and a fresh financial start, speak with an experienced bankruptcy attorney and discuss your options.  Make wise decisions about your personal finances.  The bankruptcy laws help over a million families get a new financial beginning each year, and it can help you too!

Fears & Nachawati Law Offices

4925 Greenville Ave Suite 715, Office 1, Dallas, TX 75206 (214) 890-0711  Google Reviews   |  fnlawfirm.com  |  Directions

Three Easy Steps To Rebuilding Credit After Bankruptcy

There are many misconceptions about the possibility of obtaining credit after bankruptcy.  The truth is that improving your credit score takes time and vigilance.  If you are willing to commit your attention to rebuilding your credit, your score will improve dramatically and quickly by following three easy steps. 

First, immediately after your case closes (usually soon after you receive your discharge), obtain your credit reports from the three largest credit bureaus: Experian, Equifax, and TransUnion.  You can obtain an absolutely free credit report from each of these companies by visiting this site: https://www.annualcreditreport.com 

Review your credit reports for errors.  All debts discharged by your bankruptcy should be listed as “Discharged in Bankruptcy” with a “Zero Balance.” There should be no activity reported on these accounts after the date you file bankruptcy.  Each credit bureau is required to provide assistance in correcting errors on your credit report.  Once the credit bureau has corrected the erroneous information it will send you an updated report. 

Second, obtain new credit.  Many debtors are reluctant to take this step either out of fear of rejection or fear of abusing available credit.  The only way to improve your credit score is to demonstrate a responsible use of credit over time.  Approximately 1/3 of your score is based on your payment history; 1/3 is your available credit; and 1/3 is various items like types of credit and length of credit history. Obtaining new credit is necessary to improve your credit score after a bankruptcy.   

Many debtors are amazed at receiving credit card offers in the mail just after they receive the bankruptcy discharge order.  Some of these offers carry very high interest and fees, so select your new credit card account wisely.  If you do not already have an installment loan, like a car loan or home loan, you should consider obtaining a secured loan from your local bank.  This loan is secured by a deposit held by the lender.  For instance, you deposit $500 in a savings account or CD, and the bank loans you $500.  If you decide to arrange a secured loan, make sure that the bank will report your monthly payments to the credit bureaus. 

Third, make your payments on time!  Bankruptcy is a serious negative mark on your credit report, but it stops all other negative reports.  Lenders place considerable weight on how you have handled your credit accounts since your bankruptcy.  One 30 day late entry on your credit report can significantly harm your credit score when coupled with a bankruptcy.  Safeguard your credit by ensuring your bills are paid on time. 

Rebuilding your credit is not difficult, but it takes time and vigilance.  Fixing errors on your credit report, obtaining new credit, and dealing with your creditors in a responsible manner are the three steps on the path to improving your credit score.  Make the most of your fresh start by taking these steps to improve your credit score.

Debt Settlement vs. Bankruptcy

Examining your options is important for anyone experiencing debt problems.  If you are considering bankruptcy or debt settlement to resolve your financial difficulties, investigate the consequences of each process before making your decision.  Below is some information about debt settlement companies and bankruptcy that you may not know: Free Consultation 

Debt Settlement:  The debt settlement process will harm your credit for years.  Creditors will report your delinquent account until it is paid.  Your report may identify settled accounts as paid less than 100%, which also adversely affects your credit score. 

Bankruptcy:  Any debt included in a bankruptcy appears on your credit report as discharged with a zero balance from the date you filed your bankruptcy case.  Bankruptcy stops adverse reporting so your credit report can improve.  Free Consultation 

Debt Settlement:  The typical debt settlement account will resolve your debt with a lump sum payment of between 20% and 80% of the debt.

Bankruptcy:  In most bankruptcy cases you pay nothing to unsecured creditors. 

Debt Settlement:  Any settled debt will have tax consequences and you may have to pay the IRS. 

Bankruptcy:  There is no tax liability for a debt discharged in bankruptcy. 

Debt Settlement:  You may be sued while you or your representative is attempting to settle your debt.

Bankruptcy:  All lawsuits are prohibited during your bankruptcy case. 

Debt Settlement: Some debt settlement companies are disreputable and the process is even illegal in some states.

Bankruptcy:  The bankruptcy process is authorized by the United States Constitution and its laws are written by Congress.  Only licensed attorneys admitted to practice in the federal courts are able to represent bankruptcy debtors. 

Debt Settlement:  The debt settlement process can take more than a year.  The general rule is: the longer you don’t pay, the better the settlement.  Creditors are reluctant to accept less than full payment unless they believe that you may file bankruptcy. Free Consultation

Bankruptcy:  The typical chapter 7 bankruptcy case takes less than six months. 

If you are struggling with debt, investigate your options and speak with an experienced bankruptcy attorney.  The federal bankruptcy law is a powerful tool to eliminate your debt problem and put you on the road to financial recovery.

Questions to ask when choosing a credit counseling agency

 

In order to file for bankruptcy, you must first get credit counseling from a government-approved agency.

To get started, visit the U.S. Trustee Program website for a list of approved credit counseling providers.

It’s a mistake, however, to simply pick a counselor off the list at random. To be sure that you get the best counseling for your time and money, there are some questions you should ask before selecting a credit counselor.

Call several of the agencies provided on the list and ask them the following questions in order to make a wise decision about your credit counseling:

  • What are your fees?
  • What if I am unable to afford your fees?
  • What services do you provide?
  • Can you assist me in creating a plan for avoiding financial pitfalls in the future?
  • What qualifications do your counselors hold?
  • What type of training and accreditations do your counselors have?
  • How do you protect my information to ensure that it is kept confidential?
  • Do your employees receive additional pay if they get me to sign up for certain services or pay a fee?

A reputable credit counseling agency will have no problem answering these questions. If you have any questions about the bankruptcy process, you can contact the Texas bankruptcy attorneys of Fears | Nachawati for free legal assistance.

 

Pre-bankruptcy Counseling and Post-filing Debtor Education

 

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 added two new requirements to the bankruptcy filing process: pre-bankruptcy counseling and post-filing debtor education.

In order to successfully file for bankruptcy, you must receive credit counseling from a government-approved agency within 180 days of filing.

The pre-bankruptcy counseling session will cover three main topics: an evaluation of your individual financial situation, an explanation of bankruptcy alternatives and a personal budget plan.

These counseling sessions typically last hour to an hour and a half. The session does not have to be in person. Online counseling and sessions conducted by phone are also accepted. Pre-bankruptcy counseling sessions cost around $50, but you can request a fee waiver if you cannot afford to pay.

Once you complete the session, you will receive a certificate that serves as proof. It is critical that you receive your counseling from an organization that is approved by the judicial district in which you are filing for bankruptcy.

The second requirement, post-filing debtor education, includes information on managing your money, creating a budget and using credit wisely, among other topics. As with pre-bankruptcy counseling, debtor education can take place in person, online or over the phone.

Debtor education courses typically last about two hours, and the fee ranges from $50 to $100. However, as with pre-bankruptcy counseling, a fee waiver can be sought by those who cannot afford to pay the fee.

After you complete the debtor education course, you will receive a certificate that serves as proof; this certificate is separate and distinct from the certificate provided for completing the pre-bankruptcy counseling session.

A qualified Texas bankruptcy attorney can answer all of your questions about pre-bankruptcy counseling and post-filing debtor education, as well as explain all of your legal options.

 

No-Strings-Attached Free Credit Reports

AnnualCreditReport.com is the ONLY authorized source to get your free annual credit reports under federal law. The Fair Credit Reporting Act guarantees you access to one free credit report every twelve months from each of the three nationwide reporting agencies: Experian, Equifax, and TransUnion. You can request your free report online, by phone or by mail. Visit AnnualCreditReport.com, call 1-877-322-8228, or fill out the Annual Credit Report Request form and mail it to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. No matter how you request your report, you have the option to request all three reports at once or to order one report at a time.

The
New York Times reports that the Federal Trade Commission is concerned that some sites, like Experian owned FreeCreditReport.com, uses the offer of free credit reports to lure customers to pay a $14.95 monthly service that alerts subscribers to important changes in their credit status. The Times also reports that 9 million people are spending a total of $650 to $700 million annually on Experian's credit reporting services.

Unlike other "free" credit report services,
Annualcreditreport.com is entirely free for your credit reports. NO CREDIT CARD NEEDED! If you want your credit score, it is available for a modest extra charge.

Don't be fooled by funny TV ads or catchy radio jingles. Make sure that free means free! The
FTC wants to ensure consumers aren't paying for credit reports that are available for free, so it has produced two of its own videos that parody the FreeCrediReport.com ads: The Restaurant and The Apartment. Enjoy the videos below and remember to get your absolutely-free-no-strings-attached credit reports at AnnualCreditReport.com, baby!

Contact bankruptcy law firm Fears | Nachawati toll free at 1.866.705.7584 or by e-mail at info@fnlawfirm.com for a free consultation on bankruptcy.

 










 

Practical Ideas for Rebuilding Your Credit Score After Bankruptcy

Rebuilding a credit score after bankruptcy is not as difficult as one would imagine. While there is no silver bullet for improving your credit score, demonstrating a positive payment history and responsible credit management really comes down to common sense. With that in mind, below are some common sense ideas to help get you started:

First, pay your debts that survive the bankruptcy early every month. Certain debts may be non-dischargeable (e.g. student loans), and others may have been reaffirmed during the bankruptcy (e.g. a car loan). Pay these monthly debts religiously and early.

Second, obtain a secured loan from your local bank. Some banks and credit unions will help you rebuild your credit history by extending a small loan secured by collateral. In most cases that collateral is a cash deposit. For instance, you borrow $500 and deposit $500 with the bank as collateral to secure the loan. Each month you make monthly loan installments to the bank until the debt is paid (and your $500 deposit is returned to you). Make sure that the bank reports these on-time monthly payments to the credit bureaus. At the end, you not only have a positive credit history, but you have the beginnings of a good relationship with a local bank.

 

Third, obtain revolving debt. This is tricky because we are talking about credit cards here. In some cases a friend or family member may be able to add you as an authorized user to an existing credit card account. If the card holder is responsible with the monthly payments, the credit card company will report these payments as a positive payment history on your credit report.

A high interest credit card is also an option, but these cards are not advisable immediately after a bankruptcy as the terms and interest rates are horrific. Bankruptcy debtors are amazed at the number of credit card offers they receive after their bankruptcy discharge, so be judicious (and sensible!) in deciding which offers to accept.

Fourth, monitor your credit report and make sure that your on-time monthly payments are reported by your creditors. Debts that were discharged by your bankruptcy case may also reappear, so it is important to inspect your credit report from time-to-time to safeguard your score.

The goal of rebuilding your credit score is to demonstrate a history of responsible credit management. This requires time and effort. Remember that because of the bankruptcy on your record, your credit score is very fragile and requires vigilance and regular attention. Fortunately, with each month, and each on-time payment, your credit score will increase.  

Contact Fears | Nachawati today for free legal advice on bankruptcy. Email us at info@fnlawfirm.com or call our toll-free number at 1.866.705.7584.

Credit Card Study Finds Widespread Unfair and Deceptive Practices By Lenders

A study released October 28, 2009, by the Pew Charitable Trust found that that 100% of credit cards offered online by the twelve leading U.S. banks engage in practices that the Federal Reserve has defined as “unfair or deceptive.” The study examined the terms of almost 400 credit cards advertised by banks and credit unions in July 2009 and December 2008.

The federal Credit Card Accountability Responsibility and Disclosure (CARD) Act, which is being implemented in stages, requires banks to eliminate unfair and deceptive practices such as “universal default” or raising rates based on a missed payment to another lender. Some of the new regulations are already in effect; others are scheduled to begin Feb. 22, 2010.

Even though the Federal Reserve lowered the federal funds rate to near zero to encourage lending by banks, the study found that credit card rates have actually increased over the past year. Bank of America had the largest percentage increase, rising from 14.99% to 18.24% for its highest rate card. Ironically, it appears that this increase in interest rates has been in some part caused by the passage of the CARD Act, which bars rate increases without a 45-day notification. To reduce risk under this the CARD Act, banks have raised rates before this part of the Act takes effect in February.

The study concluded that these rising rates makes credit cards a potentially dangerous part of most Americans’ financial lives. If credit card debt has become a danger to your financial well-being, you should consult with a qualified bankruptcy attorney and discover the cure. Don’t rely on Congress or the beneficence of the credit card industry to make your debt disappear. Take matters into your own hand, and discharge these unscrupulous lenders from your life once and for all.

If you are considering bankruptcy, contact Fears | Nachawati toll free at 1.866.705.7584 or e-mail us at info@fnlawfirm.com for a free consultation.