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.
 

Easter Egg Hunt for Exceptions to Bankruptcy Discharge

 As if deciphering the Bankruptcy Code wasn’t hard enough, sometimes Congress hides little traps for bankruptcy attorneys in other laws. These laws deny discharge to debtors for certain debts to the federal government for educational or other benefits.

 

HEAL Loans

The Federal Health Education Assistance Loan (HEAL) Program was a student loan program for eligible graduate students in schools of medicine, osteopathy, dentistry, veterinary medicine, optometry, podiatry, public health, pharmacy or chiropractic and in programs in health administration and clinical psychology. New HEAL loans to student borrowers were discontinued in 1998, and HEAL refinancing terminated in 2004. Under 42 U.S.C. sec. 292f(g), a HEAL loan is only dischargeable if denying the discharge would be “unconscionable.”

 

Armed Services Debts

37 USC sec. 303a(e)(4) provides that special pay, incentive pay, or educational benefits paid to a service member may not be discharged in bankruptcy within five years after termination of service. A list of various military incentive and bonus programs is contained in Subchapter I, Chapter 5 of Title 37, and the repayment provisions must reference §303a for the discharge limitation to apply.

Section 303(a) includes benefits received while attending a military service academy. After the initial five years prohibition period, section 523(a)(8) prohibits discharge of a service academy debt under the same rules as civilian educational loans. Section 303(a) also excludes from discharge penalties for failure to participate in Select Reserve programs that had associated educational assistance. See 10 USC §16135.

 

Troops to Teachers

Financial assistance granted to a service member for participation in the troops-to-teachers program is not dischargeable under any circumstance. See 20 USC 6674(f)(3).

 

Government Fines

While Section 523 of the Bankruptcy Code makes a criminal fine nondischargeable, 18 USC 3613 makes any civil judgment obtained by the United States to enforce the fine non-dischargeable.

 

Indian Heath Scholarships

An American Indian scholarship grant to pursue a health profession career has bankruptcy discharge restrictions if the student leaves school or fails to fulfill the subsequent service obligations. The debt is not dischargeable for five years from the date repayment is first due. See 25 USC §1616a.

 

Veterans Benefits

Benefits that are owed under the Veteran’s Benefits Educational Assistance are not dischargeable for five years. See 38 USC §7634.

Awareness of all the details and exceptions that accompany bankruptcy can overwhelming and daunting when trying to file without the guidance of an attorney. If you are considering bankruptcy, the experienced and reputable bankruptcy attorneys at the Fears | Nachawati Law Firm can offer you the expertise needed to successfully file for bankruptcy and ensure that you are aware of all of the complex details of your case. To get started on the path of financial recovery, contact our office for a free consultation by calling 1.866.705.7584.

 

 

Considerations for Using Chapter 13 to Avoid Repossession of a Vehicle

 

 

Chapter 13 bankruptcy includes a provision to prevent all collection activities after a bankruptcy case is filed.  This provision is commonly called the “automatic stay”.  In the case of repossession, it means that a lender (Creditor) must stop all repossession activities IMMEDIATELY upon the filing of the bankruptcy case.  It even means that the vehicle cannot be sold to anyone else for a period of time AFTER repossession so long as the buyer (Debtor) still has some “interest” or some “right” to take the vehicle back. 

 

These “interests” or “rights” may vary from state to state and; therefore, should be the subject of a whole separate discussion.  However, it does form the basis of one of the benefits of Chapter 13 bankruptcy.  The benefit is that the Debtor is usually able to get the vehicle back shortly after repossession if the bankruptcy case is filed during this period of time.  However, another issue to consider is that the Debtor is usually obligated to pay certain fees incurred by the Creditor as a result of having to repossess the vehicle if the Debtor intends to keep the vehicle. 

 

Most importantly, the Debtor should compare the cost of saving the vehicle in bankruptcy versus the amount of money the Debtor actually has invested in the vehicle.  The cost of saving the vehicle should include the fees for the bankruptcy (both attorney fees and filing fees) as well as Trustee fees and additional interest that may be incurred by keeping the vehicle in bankruptcy.  Once again, bankruptcy fees vary but it is typical to expect approximately $3,000.00 in bankruptcy fees in Chapter 13.   In addition, Trustee fees are typically 7-10% of the value of the debt included in the bankruptcy plan.  Therefore, a vehicle that has a debt of $20,000.00 would cost as much as an additional $2,000.00 in Trustee fees.  It is easy to see from this example that a vehicle for which a debt of $20,000.00 is owed may not be worth saving; unless the vehicle is worth over $25,000.00. 

 

However, the example above assumes that saving the vehicle from repossession is the only reason for filing the bankruptcy.  In most cases, the repossession or potential repossession of a vehicle may be only one of many reasons for filing the bankruptcy case.  Most consumers who have experienced financial difficulty that prevented them from making their vehicle payments are also having difficulty with other payments such as mortgage payments and/or credit card payments.  If the Debtor in this example has credit card debt of $5,000.00 or more and can eliminate some or all of it in bankruptcy, then it may still be a good alternative to seek bankruptcy protection.  

 

Two common situations where it may not be advisable to save a vehicle from repossession in bankruptcy are where the vehicle is worth LESS than the debt that is owed on it, and where the Debtor is not able to make the vehicle payments at all.  Chapter 13 requires that the Debtor must commence making payments to the Trustee within 30 days of filing the bankruptcy case.  And because of the fees mentioned earlier in this blog, it is unlikely that the Trustee payment is going to be much less than what the vehicle payment was originally.  So if the Debtor is still without income or unable to make a monthly payment to the bankruptcy Trustee, then filing bankruptcy will probably not be a good alternative for saving the vehicle.

 

There is one exception to the situation where the vehicle is worth less than the debt that is owed on it.  In cases where the vehicle has been OWNED for more than 910 days, (approx 2.5 years) then it is possible to “cram down” the debt owed on the vehicle to the current value of the vehicle.  Determining the value of a vehicle in this situation can be difficult, but where it is clear that the value is less than the debt, there is a definite benefit to using Chapter 13 to save the vehicle. 

 

Of course, every person’s financial situation is different and there may be other considerations for filing Chapter 13 besides the ones mentioned above. But if you are in danger of losing your vehicle to repossession you should speak to a bankruptcy professional and consider Chapter 13 as one of your alternatives.

 

 

 

Your Credit after Bankruptcy

Although declaring personal bankruptcy has many advantages, one of the principle disadvantages is that it can be difficult to access credit in the weeks, months and even years after your Chapter 7 or Chapter 13 filing. Fortunately, by taking timely, prudent action, you can minimize your interest payments and maximize your credit score.

 

There are many steps you can take. And the best one may be to work out a post-bankruptcy financial plan with the professionals at the law firm of Fears Nachawati. Still, here are three suggestions you may consider.

 

First, review your credit score, credit history and claims against your credit. Make sure that the listed debts are numerically accurate. Also, be sure to check that they are appropriately characterized. Debts that were included in bankruptcy should be labeled as such – as should debts that are not included in bankruptcy.

 

Second, write a budget and live within your means. It’s a lot easier to say than to do, but making the hard choices now will make your life much easier in the near future. Once your financial life has stabilized, you’ll feel a lot more comfortable using credit instruments – like credit cards – when the time comes.

 

Finally, think seriously about when you should reacquire credit – and for what purpose. It’s important not only to steer clear of a bad relationship with credit cards, but also to establish a good one. Future lenders will want to see that you can handle the challenges of credit. At some point, you may want to contract for a limited amount of debt that serves a particular purpose, such as your weekly tank of gas.

 

The team of professionals can help you plan for your future – both in bankruptcy and beyond. Contact our attorneys today for your free consultation.

Remember Your Financial Management Course!

The bankruptcy laws require a consumer debtor to complete an approved course in financial management as a prerequisite to receiving a discharge. This class is different than the credit counseling class required prior to filing your case. The financial management class curriculum must be approved by the Office of the U.S. Trustee and approved classes are required to last a minimum of two hours. Your bankruptcy attorney has a list of approved agencies, or you can find an agency by visiting the U.S. Trustee’s website at www.justice.gov/ust.

CHAPTER 7
Once you complete the financial management course, you must file your certificate and Official Form 23 with the bankruptcy court. For Chapter 7 debtors, these forms must be submitted no later than 45 days after the date of the first scheduled meeting of creditors. Rescheduling or continuing your meeting does not change the 45 day timeline. If you miss this deadline, the court will close your case without discharge. Most courts will allow the debtor to reopen the case by paying a fee, file the certificate, and receive a discharge. However, you may incur additional attorney fees to reopen a closed case.

CHAPTER 13
Chapter 13 bankruptcy debtors file the financial management course certificate and Official Form 23 no later than the date of the last plan payment. It is always recommended to take your financial management course within the same time frame as a Chapter 7 debtor (45 days). This reduces the risk of denial of discharge. Additionally, the financial management course provides budgeting information that contributes to a successful Chapter 13 case.

Hiring an experienced bankruptcy attorney means that you get the benefit of a seasoned office staff with safe-guards and procedures to protect your interests. Your attorney will remind you several times during your case to complete the financial management course. However, taking the course is your responsibility. If you encounter any difficulty in completing the course, discuss the matter with your attorney as soon as practical.
 

What's In Your Wallet after Bankruptcy?

The widely used credit card, Capitol One, has made the phrase, “What’s in Your Wallet?” one of the most famous marketing taglines in American business history. For an up-and-coming consumer financial services firm, Capitol One’s question gently asked consumers to reexamine their financial life and focus on the issue of whether they were getting the deal they deserved from their credit card company.

 

For individuals and families preparing for bankruptcy, this question is important, too. In the months after bankruptcy, your access to credit will likely be limited. High-interest, low-balance credit cards may be your only place to find financing. Prudent people may tell you that a credit card is the last thing you need. In fact, for many families, high-interest debt is precisely why they’re in the fix that they’re in.

 

Ironic as it might seem, a credit card may be just what the financial doctor ordered. In the immediate aftermath of your bankruptcy, your credit score will tell one story to a lending institution: “Don’t trust this person with a loan!” By signing up for a credit card and making timely, full payments, you’ll start to change that story. Creditors will see your regular payments and responsible use of credit.

 

Will you pay for this strategy with higher interest rates? You bet. And if you can’t control your spending, this strategy can be extremely dangerous. On the other hand, if you really have turned a corner in your personal, business, and financial life, this approach may ensure that you get the credit you need to rebuild your credit score.

 

Ready to talk about other strategies to improve your financial life after bankruptcy? Talk to the professionals at the law firm of Fears Nachawati today. With years of experience, we know how to give you the advice you need.

Liquidity Crisis at Heart of Centennial Bankruptcy

If you’ve had a glass of scotch or a bourbon cocktail in Dallas in the last few years, chances are pretty good that you’ve made a purchase at a Centennial. The only problem for Centennial Beverage Group, however, is that you just haven’t been making as many purchases as they need to keep their doors open.

 

Facing a sharp decline in sales in recent months as well as unavoidable fixed costs, most notably debt service, the Dallas-based liquor store chain filed for Chapter 11 bankruptcy protection in late 2012. Preceding the bankruptcy filing, Centennial engaged in a one-time “inventory liquidation” in hopes of raising the necessary funds to survive bankruptcy without interim debtor financing. The strategy – which raised $2.7 million, $400,000 more than forecasted – appears to have worked.

 

So, what put Centennial in a position where it had to engage in an asset fire sale and file for Chapter 11 protection? The reasons are many, but imprudent overexpansion, excessive reliance on credit, and unexpected competition from “big box” liquor stores all seem to play a part.

 

The trials and tribulations of this Dallas landmark company aren’t just important for corporate debtors. Consumer debtors should pay attention, too. Just what are the lessons worth learning?

 

First, if you’re thinking about declaring bankruptcy, you should have a plan in place. Centennial’s “inventory liquidation” was a measure which its creditors probably didn’t see coming. As a result, Centennial successfully dodged one of the critical periods during the life of a bankruptcy: how to keep the wheels turning before the discharge of debts.

 

Second, imprudent overexpansion, excessive reliance on credit, and unexpected competition are precisely the same drivers in most consumer bankruptcies, too. If you purchase more than you can afford, you’ve probably overexpanded. If you’re making normal operating expense purchases on credit cards (i.e. groceries or gas), you’re probably relying too much on credit. And if you’ve lost a job or if you’re having trouble finding a job, labor competition may be the source of your problem.

 

Fortunately for Centennial Beverage Group, skilled, experienced attorneys were available to help firm management size-up their challenges and to chart a course for the future. The professionals at Fears Nachawati are prepared to do the same for you. To find out how we can help you and your family, contact our lawyers and professionals today.

Should I Get A New Credit Card Before Filing Bankruptcy?

Bankruptcy is a powerful financial tool to get you back on the right path. It is a fresh financial start, a new beginning free from oppressive debt. Despite the tremendous benefits of restructuring debt, some people want a head start on the recovery from bankruptcy. They want to rebuild their credit quickly and get on with their lives. There is nothing wrong with a head start as long as it is within the rules.

Obtaining a new credit card before filing bankruptcy is a gamble. The basic rule is that you must list all of your debts and your creditors on the bankruptcy schedules. A new credit card with a balance owed is a debt that must be reported to the bankruptcy court. Additionally, debts incurred just before filing are often non-dischargeable. In other words, the new creditor receives notice of your bankruptcy, it closes your account, and your debt is likely excluded from discharge.

However, there is a legal loophole. If you have an open credit account, but do not owe anything to the creditor, then it is not a debt and does not have to be disclosed. Also, the credit card company is not a creditor for bankruptcy purposes. It is important to recognize that some card issuers run periodic bankruptcy checks on their customers. Your credit card company may discover your bankruptcy and close your account even though it is not included in the bankruptcy case. Obviously, a creditor included in your bankruptcy will close all open accounts, regardless of the balance.

During a Chapter 13 case the debtor is expressly prohibited from using credit. Use of a new credit card is a violation of the terms of your Chapter 13 case and has serious consequences, including dismissal of your case before discharge.

If you intend to use your new credit card after bankruptcy, you should wait until after your case closes. Then use your card regularly, and make your payments on-time every month. Keep a very small balance on your account (like $5.00). This ensures that the card company reports your use and payments every month.

Personal credit is a fact of life, but it should not be a way of life. Re-establishing your credit takes time and persistence. Credit is available after your discharge, but at higher rates. If you are considering a new credit card before filing bankruptcy, speak with your bankruptcy attorney for guidance.
 

Why Experienced Bankruptcy Counsel Matters

Filing for personal bankruptcy doesn’t take place in a vacuum. Phone calls and home visits from debt collectors, piles of unpaid credit card bills, and painful, personal rejections from bank lenders often precede a debtor’s decision to file bankruptcy.

 

When the stress is this high and the issues are this complicated, it’s helpful to have an attorney who has experience with the questions and answers, laws and facts, and hopes and fears associated with your personal bankruptcy. Specifically, some of the common issues that an experienced professional at Fears Nachawati can help you address are what deadlines you may face, what state and federal laws apply to your case, whether your home can be saved from foreclosure, and what will happen to your personal assets.

 

Our experienced professionals can advise you as to whether Chapter 13 is available to you and your family, whether Chapter 7 or Chapter 13 best addresses your concerns, and how you can move from financial insolvency to financial stability. The choices are yours and the options are many. Fortunately, we’re prepared to explain what’s possible. 

What Motivates Bankruptcy Filings?

Why do consumer debtors file Chapter 7 or Chapter 13 bankruptcy protection? If you think the answer is financial irresponsibility, compulsive spending, or even insolvency, you’d be wrong in more cases than not. The biggest driver of personal bankruptcy is the unexpected: unplanned job loss, unanticipated illness, and rapidly deteriorating relationships when end in divorce.

 

Unemployment isn’t like it used to be. Since the financial crisis of 2008, more Americans have experienced periods of unemployment than at any time in the nation’s history. In 2012, the Bureau of Labor Statistics announced that 5.2 million Americans had been unemployed for longer than six months. Moreover, finding jobs for which you’re qualified is tougher than normal. In fact, things have been so different from what used to be “normal” for so long that a new term has developed: the new normal.

 

Even if you have a job now, prolonged unemployment can have a lasting legacy. Accumulated debts, particularly on high-interest financial vehicles such as credit cards or payday loans, may grow even as you make the payments you can. Like standing in quicksand, you may feel like you’re sinking further and further into debt. If this sounds like you, it may be time to throw up your hands, exercise your rights, and declare bankruptcy.

 

Likewise, medical bills can be similarly crushing. Over the last several years, real wages have remained relatively stagnant while medical costs have risen steadily. In 2010, for instance, Americans spent $2.6 trillion on health care, up from a mere $256 billion just thirty years prior. Costs have gotten so high that the Center for Disease Control has estimated that in 2011 20 percent of American families missed payments on their health care debts. If this starts to happen, bankruptcy may be the necessary evil you need.

 

When is the right time to take the plunge and declare personal bankruptcy? It’s hard to know. Fortunately, the attorneys at Fears Nachawati can help you answer this important question. Moreover, if you conclude that it’s time to get started making your way through bankruptcy and toward a new financial life, we can help you get started immediately. Your free consultation is just a phone call or email away. Contact us today.

How To File A Cheap Bankruptcy

Bankruptcy is a federal legal process that consists, at minimum, of filing a court petition, attending credit counseling classes, and meeting with a bankruptcy trustee. In every consumer bankruptcy case there are three categories of fees: (1) bankruptcy filing fees; (2) credit counseling fees; and (3) attorney fees. Filing a bankruptcy case does not have to be expensive or unaffordable. Below are some tips and tricks to keep costs low.

Bankruptcy Filing Fees
Because bankruptcy is a federal legal process, court filing fees are the same throughout the country. For a Chapter 7, an erase-your-debts-start-fresh bankruptcy case, the filing fee is $306. For a Chapter 13, a repayment plan, the filing fee is $281. These fees must be paid to the clerk of the court upon filing. However, with the court's permission individual debtors may pay in installments. The final payment cannot be later than 120 days after you file the petition. In some rare cases the filing fee may be waived altogether for debtors who earn less than 150% of the poverty level. Bankruptcy filing fees are the same whether a debtor files a single or joint husband and wife bankruptcy.

Credit Counseling and Financial Management Courses
The federal Bankruptcy Code requires each consumer debtor to receive credit counseling from a nonprofit budget and credit counseling agency approved by the United States Trustee within 180 days prior to filing a bankruptcy. This counseling fee is around $50.00 per household and is available in-person, by telephone, or over the internet. After filing, the debtor must complete an "instructional course concerning personal financial management." This class is also available in-person, by telephone, or over the internet for a fee around $50.00 per filer.

The Bankruptcy Code directs approved providers of the credit counseling and financial management courses to provide services without regard to your ability to pay. If you can’t afford the counseling, the agency may waive the fee or require you to pay a lesser amount.

Attorney Fees
Attorney fees are negotiated between the debtor and the attorney. Attorney fees are paid up-front in Chapter 7 cases. In Chapter 13 cases, the attorney may elect to receive attorney fees in equal monthly installments. The attorney is paid from the debtor’s monthly payment to the trustee, and makes the entire process more affordable. A few not-for-profit agencies and private attorneys provide free bankruptcy representation to indigent individuals.

If you are in need of debt relief, but are afraid that you cannot afford the bankruptcy fees, speak with an experienced bankruptcy attorney and discuss your options. There are strategies that you and your attorney can employ to make the process fit your budget.
 

Improve Your Credit Score After Bankruptcy

Credit repair “experts” are fond of saying, “There are no quick fixes to improve your credit score.” But that is simply not true! In fact, there are three “quick and easy” ways to improve your credit score that you can do yourself - without paying expensive credit counselors or attorneys. By using these methods, you can quickly improve your credit score after bankruptcy.

The first, most basic way to improve your credit score is to check your credit report for errors. There are three main credit reporting bureaus: Experian, Equifax, and Trans Union. You are entitled to one free credit report from each of these reporting bureaus each year under the federal Credit Reporting Act. The easiest way to get a free copy of each report is to use the consumer website at http://www.annualcreditreport.com. Your free credit reports can be downloaded instantly.

Credit reports suffer from the problem of “garbage in, garbage out.” In other words, the report is only as good as the information that is provided by creditors. Sometimes this information is only partially true, or entirely false. Inaccurate information can be corrected quickly and easily using each credit bureau’s dispute process either on-line, over the telephone, or by letter. The credit bureau is required to investigate your dispute, disclose any information it acquired in making a decision on your dispute, and provide a free copy of your amended credit report. Fixing errors on your credit report will immediately improve your credit score.

The second way to quickly improve your credit score is to reduce or eliminate your outstanding debt. Debts can survive bankruptcy because they are either non-dischargeable (e.g. tax debt or student loan) or voluntarily retained (like a secured car payment). Paying down debts and remaining loans will immediately improve your credit score. Re-establishing your credit with revolving debt (like credit cards) and paying your bills will slowly improve your score over time.

Piggy-backing is credit repair’s dirty little secret and can quickly improve your score. Piggy-backing involves attaching your name to someone else’s debt, usually as an authorized user of the credit account. The history of this account is then transferred to your credit report. Bankruptcy debtors often use the good credit of a family member. Piggy-backing to an account that has been open for years, with a great payment history, and a low balance can dramatically improve your credit score.

Despite the traditional wisdom that it takes time and effort to improve your credit score, there are a few shortcuts. These tricks take very little time or effort and can quickly improve your credit score.
 

Consumer Debt: The Good, the Bad, and the Risky

For American consumers, there’s some good news with respect to their debt levels. In the second quarter of 2012, Americans continued to reduce their credit card debt, down to just $672 billion or 22 percent from 2008 highs. Credit card debt is one of the most dangerous forms of lending for debtors because of its high interest rates, floating rates, and hidden charges and penalties.

 

The lending picture isn’t uniformly rosy, however. Across the country, car loans have increased significantly, and in Dallas, key housing indicators suggest a softening housing market. Nationally, debt related to automobile purchases increased by $13 billion in the last quarter, up to $750 billion, as consumers fulfilled postponed needs. While automobile purchases suggest consumer confidence and represent more of an investment than pure consumption, greater personal debt during a soft recovery can be dangerous.

 

Likewise, in Dallas, housing – the largest single source of consumer debt per capita – has fallen off of late. For instance, the last month has shown a decline in average listing price and number of listings. Additionally, one-bedroom residences, precisely the homes that struggling debtors are most likely to own, have fallen 16.5% in average value during the last year. As home values decline, struggling debtors lose their last major store of value and may be forced to confront a dire financial picture.

 

In general, debtors don’t fall into financial distress over night. Likewise, it’s wrong for consumers to think that they’ll solve their financial problems quickly either. What you need whether you’re considering bankruptcy or trying to avoid it is a plan. The dedicated and experienced attorneys at the law firm of Fears Nachawati know how to advise clients like you and can offer you the advice and recommendations you need. Call us for your free consultation today.

A Dangerous Combination: Rising Health Care Costs & High Unemployment

Unemployment in Texas remains above 7 percent, according to the Bureau of Labor Statistics. While Texas’s unemployment picture is better than most states, the reality is Texas unemployment remains almost twice as high as unemployment prior to the 2008 financial crisis.

 

To make matters more distressing, certain population subsets, such as African-American men, younger workers, and non-college educated workers, are significantly underrepresented in the overall Texas unemployment figure. For instance, 13.4 percent of African-American men and 16.2 percent of younger-than-25 workers are unemployed in the Lone Star State, down only slightly from national peaks in 2011.  

 

Meanwhile, health care costs continue to rise, notwithstanding recent changes in federal health care. In 2012, average annual health care costs for the American family of four exceeded $20,000, up from 7 percent over last year. To make matters particularly shocking, this cost estimate is up from less than $10,000 ten years ago.

 

What’s the result of high unemployment and rising health care costs? For many families, the first step is to secure debt-based liquidity like a home equity loan. When available home equity debt runs out, families next turn to more easily accessible, higher interest debt like credit cards. Finally, as interest payments begin to consume a larger and larger portion of monthly earnings, families begin to make tough choices about spending.

 

Are there better ways to deal with declining prosperity and rising debt? For most families, the answer is yes. Are you ready to learn what’s possible for you? Find out about your legal rights and available credit options through the attorneys and dedicated professionals at the law firm of Fears Nachawati. With years of experience crafting credit solutions for consumers like you, we know how to protect your interests. Call us today.

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.

Is Credit Score Damage Overemphasized when Considering Bankruptcy?

For most Americans, access to credit is essential. Whether in the form of home loans, student loans, home equity loans, credit card debt, or auto loans, credit is important to keep life humming along. Sometimes personal indebtedness is seasonal: the holidays and summer travel brings unique, one-time costs. Other times, indebtedness is a reflection of seasons of life: job loss, illness, or a family member’s death.

 

For individuals and families facing bankruptcy, access to credit can feel just as essential. In many cases, access to credit has been even more important to distressed debtors than the average American. Often for these Americans the credit card or home equity loan has been the difference between making ends meet and going hungry.

 

Here’s the surprise: despite how it feels, access to credit may actually be less important to debtors considering bankruptcy than to most Americans. For many on-the-brink debtors, months or years of partial payments, late payments, non-payment may have eroded their access to reasonable or prudent forms of credit.

 

If you’re considering declaring bankruptcy, you may be worried about what bankruptcy will do to your access to credit. But if you’re like a lot of debtors, you’ve already lost the good credit score that’s essential to your access to credit. So, if your credit score concerns are all that’s holding you back, it may not be the persuasive worry you think it is.

 

Do you have questions and concerns about whether bankruptcy might be right for you? Talk to the professionals and dedicated attorneys at the Dallas law firm of Fears Nachawati to find the answers you need. We’re ready to help you.

Your Options for Relief from Debt

You may have heard the expression, “There’s no one way to skin a cat.” For most Americans struggling to make ends meet, that expression is true for debt relief, too.

 

For most debtors, the truth is that you’ve got options. To ease the stress on your family’s balance sheet, credit counseling might be all that you need. Alternatively, depending on the amount of debt you owe and the willingness of your lender, you may be able to negotiate a debt settlement. In a debt settlement, you may wind up making a large one-time payment and, in exchange, receive debt forgiveness for the remainder of your indebtedness. Finally, you can take the nuclear option: declaring bankruptcy.

 

Personal bankruptcy has drawbacks. It can severely damage your credit score for a prolonged period of time and reduce your access to future credit. On the other hand, it’s not all bad news. Bankruptcy can also relieve you of potentially all of your unsecured debt. Moreover, while you’re in bankruptcy, the automatic stay will protect you from annoying phone calls, letters, and emails from your creditors.

 

Which course of action is right for you and your family? The attorneys at the Dallas law firm of Fears Nachawati are prepared to help you sort through these tough decisions. Thanks to our experience, we’re able to help debtors determine the right course of action for their families. Contact our professionals today to get started on your road to financial freedom. We’re ready to help.

Bankruptcy Can Improve Your Credit

When a person files bankruptcy, the federal Fair Credit Reporting Act (FCRA) directs consumer credit reporting agencies to reclassify consumer debts as "included in bankruptcy." No credit reporting activity is allowed after the date of the bankruptcy filing. That includes late payment reports or transfers to a debt collection company.

Since debts are effectively "frozen" on the date the bankruptcy is filed, your credit can start to heal immediately after filing. Credit scores are heavily weighted to place more importance on recent credit activity. Since negative entries are not allowed after bankruptcy, your credit score will quickly improve over time.

Once a debt is discharged, the FCRA directs that the debt is to be listed as "discharged in bankruptcy." The bankruptcy discharge is the hallmark of a Chapter 7 case. The discharge is a federal court injunction prohibiting creditors from collecting on financial obligations owed by the debtor. The bankruptcy discharge eliminates the debtor's legal obligation to pay the debt.

Once the debt is discharged and is no longer a personal financial obligation, your credit score will again improve. Credit scoring models place great emphasis on outstanding debt balances and consider the percentage of credit used, the overall debt load, and your debt-to-income ratio. Without this oppressive debt hanging over your head, you are better able to pay your bills. You are, therefore, more credit worthy.

Filing a bankruptcy case is a very serious matter - one that has serious consequences. However, for those that need it, bankruptcy is welcome relief. In many cases debtors see immediate improvement in their credit scores, and many debtors are able to obtain a car loan after bankruptcy or a house loan one to two years after their discharge. If you need this type of relief, contact an experienced bankruptcy attorney.
 

Help! I've Been Sued By My Credit Card Company!

A credit card balance is like snow at the top of a mountain. A good amount of snow is pretty and fun to ski. Likewise, a credit card balance often means that you purchased items that you could not presently afford – often “fun” expenses. However, too much snow can cause an avalanche. Too much credit is equally as dangerous as just one missed payment can damage your credit. Wait too long to pay and the credit card company can close your account, declare the debt defaulted, and raise your interest rate (often to 28% or more!). If you are still unable to pay your credit card debt, you can look forward to harassing telephone calls, third party collectors, and finally a lawsuit.

When you receive a summons to appear in court you have four options: (1) do nothing; (2) defend the law suit; (3) negotiate a settlement; or (4) file a bankruptcy. Doing nothing is obviously a bad choice. When you fail to appear in court the judge will enter a judgment against you for the full amount of the debt, plus interest, plus fees. Your wages are then subject to garnishment and the money in your bank account may be seized. A judgment is a public record that will remain on your credit report for at least seven (7) years.

Hiring an attorney to defend a credit card lawsuit is usually not cost-effective because it may cost several thousand dollars in legal fees to contest a debt of just a few thousand dollars. Additionally, if you actually owe the money, there is a good chance you will lose the lawsuit.

Even if you are represented by an attorney, it is very difficult to negotiate a settlement once a lawsuit is filed. That is because the work for the creditor is already done and money is already spent to obtain a judgment. A judgment is a legal hammer that will force you to pay your debt. Why would the creditor stop the lawsuit for less than full payment?

The final option, bankruptcy, is a legal shield. Bankruptcy immediately stops the lawsuit and prevents the entry of a judgment. Once the individual’s obligation to pay the debt is discharged by the bankruptcy court, the lawsuit must be dismissed and cannot be refilled. Filing bankruptcy prevents almost all future lawsuits from being filed and can discharge the obligation to pay most court judgments.

If you have been sued by a credit card company, discuss your situation with an experienced bankruptcy attorney. There are many options for dealing with your financial difficulty, and a bankruptcy attorney can help you select the best course of action for you and your family.
 

Joint Credit Cards, Divorce, and Bankruptcy

In marriage, “two become one.” It is a beautiful sentiment that also has legal implications. Married couples often enjoy better legal protections than unmarried people. However, when a couple obtains unsecured credit together, like in the case of joint credit cards, the legal status of the marriage does not offer any unique protections.

A joint credit card is generally a bad idea. If there is a default on a joint credit card, the credit card company can pursue either individual or joint assets. The company can sue both husband and wife, and can collect from property owed by the husband and/or wife. On the other hand, if the credit card is just in the husband’s name, the bank cannot get at property that is not in his name - and vice-versa for the wife.

During a divorce the family law court will divide marital debts and order the individual parties to pay an assigned share of the debts. For instance, a family court may order husband to pay a joint credit card debt. If the husband fails to pay the joint credit card debt, the family court can hold him in contempt of court, which can include money sanctions or even jail until he complies with the order. In many cases the court can order the defaulting party to pay a kind of restitution to the other party (often called a “hold harmless” clause in the divorce action).

While the family court has the power to direct the divorcing couple to pay an unsecured credit card, it does not have the power to alter the original credit agreement with the credit card company. The family court order does not apply to the credit card company because the card company was not party to the divorce proceedings. This joint contract is still fully enforceable, and if the debt is not paid as agreed, the card company can collect 100% of the debt from either or both parties.

Default on a joint credit card debt after divorce may lead to bankruptcy. Discharge of a marital debt is tricky and requires the assistance of an experienced bankruptcy attorney. In basic terms, one party can discharge a joint credit card debt if the debt is not “in the nature of support.” Credit card debts are not generally viewed as support obligations, so the next inquiry is whether there is a hold harmless clause in the divorce decree. If so, the credit card debt could be determined non-dischargeable during a Chapter 7 bankruptcy case, but can be discharged in a Chapter 13 case.

Discharging joint credit card debt after a divorce can get complicated and can lead to litigation with your ex-spouse during your bankruptcy case. The best advice is to have the matter fully examined by an experienced bankruptcy attorney before filing. Your attorney can assess your situation and give you a legal opinion as the dischargeability of the debt.
 

Discharging Credit Cards Through Chapter 7 Bankruptcy

A Chapter 7 bankruptcy case can discharge many financial obligations, including credit card debts. A Chapter 7 discharge means that the credit card company is permanently prohibited from trying to collect from you. The debt is unenforceable against you, and you are not required to pay income taxes on the discharged debt.

Credit cards are classified as "unsecured debts," the lowest category of debts during bankruptcy. Other common unsecured debts are medical bills and signature loans. The payment of an unsecured debt is not guaranteed by a pledge of property (e.g. a car loan). Consequently, when an unsecured debt is discharged in a Chapter 7 bankruptcy, the creditor typically receives nothing.

Discharging a credit card debt in a Chapter 7 bankruptcy case comes down to one simple rule: was the debt incurred honestly? The Chapter 7 bankruptcy laws favor discharging credit card debt and giving the honest debtor a fresh start. However, the law balances the scale by withholding the discharge when the debtor is less than honest.

First, a credit card that is not listed in your Chapter 7 bankruptcy case is often excluded from your discharge. This is especially true if you continue to use the card during or after filing bankruptcy. The additional charges made after filing bankruptcy cannot be discharged, and becomes good evidence of an intent to conceal the credit card from the court and the bankruptcy filing from the creditor.

Second, if you go on a spending spree with our credit card immediately before filing bankruptcy, those charges are presumed non-dischargeable. This rule includes "luxury purchases" of more than $600 made within 90 days of the bankruptcy, as well as charges made on your card that you have no intention of repaying. The best advice is to stop using your credit card before you file bankruptcy.

Third, if you take cash advances totalling $875 within 70 days prior to filing bankruptcy, the debt is presumed non-dischargeable.

Fourth, a false statement to the credit card company on your application could be used to deny discharge of the debt. While credit card companies seldom use this tactic, if there is plain evidence of fraud (e.g. your yearly income was $20,000, but you claimed it was $200,000), the credit card company may file an adversarial action during your case and seek to deny your discharge.

Discharging credit card debt is usually a simple matter in a Chapter 7 bankruptcy case. It is very important to answer your attorney's questions honestly and fully in order to receive the best advice. Your attorney can often avoid problems when they are revealed in advance, and can get you the relief you need.

 

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Your Credit After Bankruptcy

Below is a terrific example of the path to rebuilding credit after bankruptcy:
http://www.yourwealthpuzzle.com/improve-credit-score-report

Rebuilding your credit after bankruptcy is a straightforward process. Your credit score is the credit industry's way of predicting how likely you are to pay your loans on time. The scoring model gives greatest weight to recent events, so your score can quickly drop when you are late, but can also improve quickly with on-time payments.

The most common credit scoring model is the FICO score, used by Equifax, Experian, and Trans Union. A consumer is assigned a FICO score between 300 and $850. For most people, filing bankruptcy will cause the credit score to drop into the 400-500 range. The bankruptcy filing will stay on your credit report for up to ten years.

You can rebuild your credit using the path outlined above. After your bankruptcy discharge you should obtain free credit reports from Exquifax, Experian, and Trans Union. You can obtain these reports for free without a credit card from AnnualCreditReport.com.

Review your reports for errors. Discharged debts should be listed as "discharged in bankruptcy" with a zero balance. Any secured property that was surrendered back to the creditor should not be listed as a repossession. The automatic stay prohibits creditors from providing negative information to the credit bureau during bankruptcy in an attempt to collect a debt or coerce payment.

Obtaining a credit card is a good way to rebuild credit, but be careful! Some credit card offers come with high fees. In many cases a secured card is more sensible. A secured card is a Visa or MasterCard that is secured by a bank deposit. Additionally, if you are still struggling financially, it is probably best to postpone the credit rebuilding process. Late payments after bankruptcy will seriously harm your credit score.

Rebuilding credit is not difficult, it simply takes time and effort. Bankruptcy promises a "fresh start," but it is up to you to take advantage of this new financial opportunity.

 

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Personal Financial Management Requirement In Bankruptcy

In 2005, Congress enacted broad changes to the federal bankruptcy code. Among these changes was the new requirement that an individual debtor must complete a course in personal financial management before a bankruptcy discharge can be ordered in the case. The hope was that by mandating a little financial education, the individual would be able to make better financial choices and have a better chance at future economic success.

So does the personal financial management class help? That question was examined in a recent article posted on Creditslips.org, a bankruptcy blog written by attorneys, for attorneys. During a study conducted in 2007, debtors were asked "1) would what they learned in the financial education class have helped them avoid bankruptcy originally, and 2) would help them avoid financial trouble in the future." 33% responded that the course information could have helped them avoid filing, and 72% said the information would help them in the future.

The negatives of the personal financial management course are that it costs the debtor time and money (although the course only lasts an hour or two and typically costs around $50). Failure to complete the class can result in a denial of discharge (a very heavy penalty). The truth that bankruptcy practitioners know, and that the 2007 study data confirms, is that most people are forced to file bankruptcy through no fault of their own. There is no class that can teach you how to avoid a work layoff or large unexpected medical bill. No course that shows you how to pay your bills when you don't have enough money

On the other hand, the personal financial management course teaches budgeting and money management. These skills can make it easier to make ends meet and help provide a more solid financial footing after bankruptcy.

If you need to file bankruptcy, your attorney can help guide you through the process and give you a fresh financial start. Building a better financial future requires the budgeting and money management skills you will learn during your personal financial management course. Your attorney will provide you with court approved providers for this course, and help get you enrolled.
 

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What Happens to Your Credit Card Debt After Death?

The saying goes, “You can’t take it with you.” However, when it comes to credit card debt, in many cases you can. When a credit card belongs to one person only, the debt also belongs to one person only. Whether that debt must be paid or passed along to another person after your death depends on a couple of factors.

If you die with outstanding credit card debt, the first question is whether there is enough money in your estate to pay the credit card company. State laws direct the administrator or executor of your estate to pay certain bills first. Anything left after paying creditors will be paid according to your will or in accordance with state law if you die without a will. Non-probate transfers like life insurance and payable on death accounts (especially retirement accounts and bank accounts) are not part of your estate after death. Credit card companies typically cannot reach money that is not part of the decedent’s estate.

Generally, if your estate does not have enough money to pay your credit card debt, the card company gets nothing. However, in some cases the credit card company may have some options to get paid. First, if the debt was jointly owned, the survivor is now responsible for the debt. For instance, if you and your spouse were jointly obligated on the debt, your spouse is now 100% obligated to pay. This rule does not apply to authorized users on your account.

Second, if you live in a community property state, assets that are accumulated during your marriage are considered joint property, and, in some cases, so are the debts. The states of Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin are community property states and a surviving spouse may be obligated to pay your credit card debts. Credit card debt will not pass onto other family members or friends.

Bankruptcy will discharge your credit card debts so that neither your estate nor your spouse will be affected. A dead person cannot file bankruptcy, but, once the bankruptcy is filed, the debtor can still receive a discharge after death. If you have concerns about burdening your loved ones with debt after your death, speak with an experienced attorney and discuss how the federal bankruptcy laws can help.
 

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Credit Card Debt Is On The Rise

A recent survey indicates a disturbing trend in the spending habits of the American consumer. After two years of moderate credit card use, new figures from Card Hub show that credit card use has significantly increased during the past year. Consumers are on track to end 2011 with a $64 billion increase in credit card debt.

Americans are also paying off credit card debt at a slower pace. During the first quarter of each year credit card debt usually declines, mostly due to annual bonuses and tax refund checks. In 2009 and 2010, consumers paid down more in the first quarter than they charged in new debt through the end of the third quarter. This year consumers kept the cash and kept charging throughout the year. Even more disturbing is that this year's third quarter credit card debt total was 154 percent more than in the same period last year.

Carrying large credit card debt can create serious financial problems. According to the Federal Reserve's credit card repayment calculator, a $5,000 debt at a 15% interest rate will take 7 years to pay off at $100 per month. During this time you will pay an extra $2,896 in interest charges!

If credit card fees are eating up your paycheck, it may be time to consider bankruptcy. During Chapter 13 bankruptcy you are able to structure an affordable repayment plan to pay credit card debt. Whatever you are not able to pay will be discharged after three to five years of repayment.

If you cannot afford to repay anything towards your credit card debt, Chapter 7 may be the answer. A Chapter 7, also called a "straight bankruptcy," lasts about five months and nothing is paid to your credit cards. Most bankruptcy debtors are able to keep everything they own while discharging debts they cannot afford to pay.

When credit card debt has taken over your finances, consult with an experienced bankruptcy attorney and learn how the federal bankruptcy laws can help. Don't let credit card debt hold your paycheck hostage! Bankruptcy offers powerful protection from creditors and can discharge overwhelming debts.
 

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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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How to Get Your Credit Reports for Free

The first step in assessing your personal finances is to obtain a copy of your credit report. Your credit report will provide several key pieces of information that will help you develop a clear picture of your financial condition. A credit report tells you: (1) who you owe; (2) how much you owe; and (3) whether you have missed payments to creditors.

Your credit report states the name and address of your creditors. This is the same information that you are required to provide should you decide to file bankruptcy. Often a creditor statement can be vague about where to send notices or correspondence. The information on your credit report is supplied by the creditor, and is presumptively correct.

Your credit report shows the total balance of your debt and the monthly payment. This information is also provided by the creditor to the credit reporting bureau. This information may or may not be correct, but it is a good estimate if you are unsure about what you owe.

Finally, your credit report contains information about payments and missed payments. It also contains information regarding collection agencies. This information can be important in calculating an arrearage for negotiating a repayment plan, or simply for giving notice to a collector about a personal bankruptcy.

The federal Fair Credit Reporting Act (FCRA) entitles you to a free copy of your credit report from each of the three major credit reporting bureaus: Equifax, Experian, and TransUnion. You are entitled to a free report every twelve months. The credit bureaus have established a central hub for accommodating consumer requests at AnnualCreditReport.com. Through this website you can order a completely free copy of your credit report from each of the three major credit reporting bureaus. You have the option to request all three reports at once or to order one report at a time.

The “free” reports provided by AnnualCreditReport.com are completely free and regulated by the federal law. There are no hidden costs or subscriptions, unlike other “free” services advertised on radio and television. You do not need a credit card to obtain your reports.

If you are overwhelmed with debts you cannot pay, contact an experienced bankruptcy attorney and discuss your options for restructuring your finances. Your bankruptcy attorney can help guide you in obtaining copies of your credit reports.
 

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I Need Help! Is Bankruptcy The Answer?

A bankruptcy client once said during an initial consultation, "I have too much month at the end of the money!" If you are in financial trouble, you don't need a wall full of fancy degrees to tell you that you're broke. What you need is help and direction to find an answer to your problem. Bankruptcy could be the answer, but how can you be sure?

Making the choice to file bankruptcy is not easy. You should start with a critical examination of your finances. It is important to have the right information, which means collecting bills, bank records, and a copy of your credit report. You are entitled to a completely free copy of your credit report each year from Experian, Trans Union, and Equifax. Simply go to https://www.annualcreditreport.com/cra/index.jsp

Blank bankruptcy schedules can actually help you organize and understand your financial situation. The bankruptcy schedules can be printed from the U.S. Courts website: http://www.uscourts.gov/FormsAndFees/Forms/BankruptcyForms.aspx

Also helpful is a free calculator from the Federal Reserve that shows how long it will take to pay off credit cards: http://www.federalreserve.gov/creditcardcalculator/

Once you have clearer understanding of your finances, it is time to investigate your options. Bankruptcy is a federal legal proceeding, which means attorneys, a judge and courthouse, and a lot of rules and laws. It is very complex, even for the most skilled bankruptcy attorney. The U.S. Courts offers a series of nine short videos that gives a very good over-view of the bankruptcy process. The videos can be viewed at the U.S. Court's website: http://www.uscourts.gov/video/bankruptcybasics/bankruptcyBasics.html

Finally, it is time to speak with a bankruptcy attorney. An experienced bankruptcy attorney can analyze your finances and recommend solutions. Your attorney can answer questions you have concerning the bankruptcy process and identify any issues that may cause trouble during your case. So don’t procrastinate any longer! Take control and get the information you need to make a wise decision. 

Education Helps Debtors After Bankruptcy

Since changes were made to the bankruptcy laws in 2005, debtors in bankruptcy have been required to complete both a pre-bankruptcy credit counseling interview and a course in personal financial management. Some bankruptcy professionals have questioned whether these requirements have any positive impact on the debtor. One recent study suggests that they do.

University of Illinois economist Angela Lyons completed a bankruptcy study that measures the impacts of both the counseling and education requirements by tracking debtors through the entire bankruptcy process.

We looked at about 4,000 debtors across the U.S. who filed for bankruptcy,” said Lyons. “We learned that the counseling and education requirements appear to be serving their intended purpose and are likely viable mechanisms to help debtors deal with their financial situation and get the fresh start that they need.”

Lyons’ findings show that most participants in the study improved their financial behaviors after counseling, and also continued those behaviors 12 months later. She says, "From an educational perspective, the findings provide valuable insight into how the requirement is helping to improve debtors' personal financial situations, learn from their mistakes and go on to make sound financial decisions in life."

This information is consistent with what bankruptcy attorneys see every day. Many bankruptcy debtors initially resent these courses. However, most debtors report that they learn useful information and consider the time worthwhile. Both the credit counseling class and the personal financial management course can be taken either in-person, on-line, or over the telephone. The costs are generally less than $50 each. Each credit counseling agency or financial management course must be approved by the Office of the United States Trustee.

The credit counseling interview and the course in personal financial management are not only required for completing your bankruptcy case, they are also important to your future financial success. Your attorney can help you choose an approved credit counseling agency to assist with the Bankruptcy Code’s educational requirements.

What is Equity?

Equity is a very important term when discussing your personal assets. Generally, equity is the difference between the market value of an item and the amount of the claims against it. For instance, if your car is worth $5,000, and your auto loan balance is $3,000, then you have $2,000 in vehicle equity. If you own the vehicle jointly with your mother, you have $1,000 in vehicle equity.

Equity is a common issue during bankruptcy, since the debtor is allowed to keep certain modest possessions. Once the amount of equity in an item of property is determined, the debtor can apply legal exemptions against the equity to protect the asset from the bankruptcy trustee and creditors.

When calculating equity, it is vital to not over-value the asset. For some items there are resources, such as the NADA Price Guide for automobiles. For other items you may need to do some investigation. Ebay is a good resource for collectibles. For real estate it may be necessary to speak to a realtor or conduct an appraisal to discover the market value.

Many bankruptcy debtors over-value furniture and jewelry. Most furniture and jewelry immediately depreciates a great deal after purchase. A used sofa may have cost you $700 at the furniture store, but the market value is only what you would get from a yard sale or through Craigslist. Probably not anywhere near what you originally paid.

After determining the market value, the second step in figuring equity is to subtract any claims against the property. The most common type of claim is called a purchase money security interest (PMSI), a fancy term that means you used a lender’s money to buy the item and used the item as security for the loan. This is usually the case with a car loan or a home mortgage, but many other credit purchases could be considered PMSI. A non purchase money security interest (NPMSI) is a loan secured by property you already own. Some finance companies use furniture or other property owned by the borrower to secure personal loans. Finally, a tax lien against real estate or even personal property may affect your equity, as can some legal judgments.

Once your equity is calculated, the next step is to apply legal exemptions to the equity. Most debtors are able to protect all of their equity using legal exemptions. If there is unprotected equity, the trustee must make a decision whether the amount of equity available is worth his time and will actually benefit creditors. Statistically bankruptcy trustees only take property or assets from debtors in about one out of every twenty five Chapter 7 cases.

It is very important to accurately calculate the amount of equity in your property. Discuss all of your property, its market value, and your legal claims with your attorney. Your attorney can then advise you on the best way to protect the property from creditors.
 

Can I Keep A Credit Card If I File Bankruptcy?

Many bankruptcy debtors need a credit card for work. Whether it is necessary for business purchases or travel, it is common for a debtor to ask, “Can I keep one of my credit cards?”

 

The answer to this question depends on a few circumstances. First, is there a balance on the card? If your card balance is zero on the day that you file your bankruptcy, then the credit card company is not a “creditor” for bankruptcy purposes, and you do not have to list the card as a debt in your bankruptcy schedules. Consequently, the credit card company will not receive notice of your bankruptcy case.

 

Before you pay down your credit card debt, be advised that substantial payments to creditors shortly before filing bankruptcy could cause a serious problem. Large payments to a creditor within 90 days of your bankruptcy filing may be avoided by the bankruptcy trustee. The trustee could compel the turnover of money paid to your credit card company and then divide it between all unsecured creditors (after the trustee takes a cut, of course). If you are considering a bankruptcy filing, speak to an experienced bankruptcy attorney before making large payments to any creditor.

 

The second circumstance to consider is, will the credit card company find out about your bankruptcy filing and cancel your card? Credit card companies perform periodic credit checks of customers to minimize risk. You may be able to keep your pre-bankruptcy credit card for a time, but then discover your card has been cancelled at an inconvenient time.


Finally, what type of bankruptcy case are you filing? In a Chapter 13 case, the debtor is prohibited from incurring any new debt without the approval of the trustee and bankruptcy court. Using credit during a Chapter 13 case can land you in trouble with the court, and your case could be dismissed.

 

Keeping a credit card after bankruptcy is often tricky business. Fortunately, many Chapter 7 debtors receive credit card offers soon after discharge, in some cases from the same companies they recently discharged. The usual advice is to discharge all of your unsecured creditors. If you need a credit card for work, apply for a new card or open a secured credit card account.
 

When Can I Stop Paying Credit Cards?

Many clients ask, "When can I stop paying on my credit cards?" The answer seems obvious: immediately. If you are filing bankruptcy and discharging your credit card debt, you are throwing money away by continuing to pay the monthly bill. Right?

But hold on! There are good reasons to consider the consequences before stopping your credit card payments.

First, when will you file your bankruptcy case? Your first step is to work with your attorney to determine the actual date you will file. When a client is filing bankruptcy within 30 days, there are very few repercussions to consider. However, not every bankruptcy client can or should file their case immediately. Some clients may need to wait in order to qualify for Chapter 7 or lower their plan payments in a Chapter 13. Other clients may need to postpone filing to eliminate a potential preference payment issue. Every case is different.

Second, once you miss a payment you can expect collection calls. The creditor may call your home, your cell phone, or even your work phone to discuss your delinquency. These calls are at best an annoyance, and often cause additional stress. Credit card bill collectors know that the more uncomfortable you are, the greater the likelihood that you will pay them. Fortunately, once your bankruptcy case is filed, the telephone calls will stop.

Third, missed credit card payments will damage your credit. While your bankruptcy case will substantially harm your credit, missed payments additionally harm your score making it more difficult to improve your credit after bankruptcy. Some bankruptcy attorneys recommend that their clients can stop credit card payments for six months or longer - until the client is facing a legal judgment. While the bankruptcy stops any lawsuit or collection action, and discharges the credit card debt, the bankruptcy will not erase the history of non-payment.

Finally, a few clients will decide to not file bankruptcy. Clients who stop making credit card payments and later change their minds about bankruptcy are left with late payments, fees, default interest rates, and collection harassment. Be sure you are filing before you stop credit card payments!

Here is the best answer to our question: consult with an experienced bankruptcy attorney before making the decision to stop paying your credit cards. Your attorney can review your finances and uncover any problems that may delay your bankruptcy filing. In many cases the client is able to stop paying credit cards immediately and the case is filed quickly without any negative consequences to the client. However, every case is different and your case deserves the careful attention of a qualified professional. 

How Long Will Bankruptcy Stay On My Credit Report?

 When a bankruptcy case is filed, information about the case is reported on the individual’s credit file. The report lists the date filed, the type of bankruptcy case (i.e. chapter 7, 11, 12 or 13), the case number, the case status, and closing date. The federal Fair Credit Reporting Act (FCRA) permits credit reporting agencies to keep this information on an individual’s credit report for up to ten years. Note that the FCRA does not mandate that reporting agencies list the bankruptcy for ten years; only that bankruptcy information must be removed from the individual’s credit report at that time.

Each credit reporting agency has its own policy regarding the length it reports a bankruptcy case as a public record. In general, Chapter 7 cases are reported for ten years and Chapter 13 cases are reported for 7 years. However, the FCRA does not distinguish between Chapter 7 and Chapter 13 cases and a bankruptcy case under either chapter may be reported for up to ten years.

The FCRA is very clear regarding when the ten year period commences. Credit reporting agencies are directed to exclude bankruptcy case information from an individual’s consumer report ten years after “the date of entry of the order for relief.” The “order of relief” is a bankruptcy term defined in Section 301 of the Bankruptcy Code as the date the bankruptcy case is filed. The day the bankruptcy case is filed is the day the ten year clock begins to run. For instance, if a case is filed on January 1, 2012, then the bankruptcy record must be removed from a credit report before January 1, 2022.

Knowing the time limitation for reporting your bankruptcy information is an important part of the “fresh start” promised by the bankruptcy laws. Filing bankruptcy does not brand an individual for life; bankruptcy relieves the individual of overwhelming debts and provides the opportunity for a second chance at a better future. If you need a financial fresh start, discuss your options with an experienced bankruptcy attorney.

Pre-Bankruptcy Credit Counseling Requirement

Individuals are required receive credit counseling from an approved agency within 180 days before the bankruptcy filing date. This requirement was enacted in 2005 as part of the Bankruptcy Abuse Prevention and Consumer Protection Act, and is meant to encourage debtors to pursue non-bankruptcy alternatives. In reality, pre-bankruptcy credit counseling has no impact on the number of bankruptcy cases filed.

In a few limited circumstances credit counseling is not required. These circumstances are identified by the federal law as:

(1) incapacity where the person is so impaired by reason of mental illness or deficiency that the individual is incapable of making rational decisions;
(2) disability where the person is so physically impaired that the individual is unable, after reasonable effort, to participate in an in person, telephone, or Internet briefing session; or
(3) active military duty in a military combat zone (currently Arabian Peninsula Areas, Kosovo area, and Afghanistan).

The law allows individuals to receive credit counseling after the bankruptcy filing under the following conditions:

(1) exigent circumstances exist that merit a waiver;
(2) the individual requested credit counseling services from an approved nonprofit budget and credit counseling agency, but was unable to obtain the services during the 5-day period before filing bankruptcy; and
(3) the request and explanation is satisfactory to the court.

Note that procrastination, inability to pay for the counseling, incarceration, etc. are not part of this list. The bankruptcy court is very reluctant to approve waivers except in the most extreme circumstances. A pending lawsuit or foreclosure alone is not enough.

Only agencies approved by the Department of Justice’s U.S. Trustee Program can issue pre-bankruptcy credit counseling certificated that are accepted by the bankruptcy court. Each agency is required to provide the service free of charge if you cannot afford to pay the credit counseling fee. Otherwise, the agency will charge a fee of around $50. The session will last approximately 60 to 90 minutes and includes an evaluation of your personal financial situation, a discussion of alternatives to bankruptcy, and may include a personal budget plan. This counseling session may take place in person, on the phone, or online.

Once your credit counseling session is completed, a certificate is issued which must be filed with your bankruptcy case. Failure to complete the credit counseling or file the certificate will result in the dismissal of your bankruptcy case.

Your bankruptcy attorney will recommend trusted credit counseling agencies. Discuss the credit counseling process with your attorney if you have questions. Do not overlook this mandatory credit counseling! 

I Have My Bankruptcy Discharge. Now What?

You should obtain a copy of your credit report immediately after receiving your bankruptcy discharge. Federal law entitles you to one free credit report from the “big three” credit reporting agencies, Experian, Equifax, and TransUnion, every twelve months. The easiest way to obtain your free credit report from each of these agencies is by visiting AnnualCreditReport.com.

After receiving your free credit reports, check each report for errors. First, any debt discharged by your bankruptcy should be listed as “Discharged in Bankruptcy” with a “Zero Balance.” Second, there should not be any negative activity reported after the date that you filed your bankruptcy case. This includes any new collection agency report after your filing date. Third, any debt that was reaffirmed should not be listed as “Discharged in Bankruptcy,” and should list your on-time payments. Finally, in some cases inaccurate information will be reported. For instance, a car voluntarily surrendered back to a creditor during a bankruptcy is not a “repossessed vehicle” and should not be reported as such.

Correcting any errors on your credit report is simple and easy. Each reporting agency has procedures from contesting erroneous information, either by mail or on-line. Once the credit agency has updated its records, it must issue you a free corrected report. Review this new report for errors; do not assume that the report has been correctly amended. You may need to correspond with the agency several times and supply documentation regarding your bankruptcy case. It is your responsibility to ensure that your credit report is accurate. Neither the bankruptcy court, nor your attorney, nor your creditors are responsible for sending the credit reporting agencies information regarding your bankruptcy case.

Updating and correcting your credit reports is the first step on the road to rebuilding your credit after bankruptcy. Fortunately, this step is free and takes very little effort. Be sure to correct your credit reports and then closely monitor your credit regularly for the first two years after your bankruptcy discharge. With timely payments and by carefully protecting your credit file, your credit score will increase quickly.
 

"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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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.

 

For Chapter 7 cases, the reach of the bankruptcy court is limited to those assets that you owned and debts that you owed on the date that you filed bankruptcy.  The judge does not have jurisdiction on post-petition matters.  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.

 

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. 

 

Automobile credit is often a concern for bankruptcy debtors.  Obtaining a vehicle during Chapter 13 bankruptcy will generally require that the debtor 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.

 

If you have filed or are considering filing bankruptcy and are in need of credit, speak with an experienced bankruptcy attorney and discuss your situation.  Your attorney can offer advice and recommendations for obtaining both a bankruptcy discharge and the credit you need.

How to Protect Your Credit When You Are Broke

Every so often a client will say, “I am hopelessly in debt, but I don’t want to ruin my credit score with bankruptcy.  It is still very good.”  This statement is just like the old joke, “I can’t be broke, I still have checks!”  A credit score is supposed to be an indicator of your financial health.  Unfortunately, many people assume that their financial health is indicated by the credit score.  Consequently, they continue to misuse credit, in many cases borrowing from credit sources to pay monthly credit obligations.  It is a vicious cycle of debt.

 

In today’s economy your credit score is not the only factor a lender considers when issuing credit.  Financial institutions are using new sources to profile their customers.  A recent article by Wall Street Journal writer Karen Blumenthal entitled New Ways Bankers Are Spying on You reports that banks are now examining rent and utility payments, bank deposits, as well as estimating your home’s value in order to gauge your financial health.  Blumenthal writes that in one case a bank customer was denied a credit after the lender reviewed his home loan records, determined that the value of his California home had declined, and noticed that his mortgage principal wasn't declining—giving away that he has an interest-only mortgage.

 

Financial good health is living within a budget, using credit responsibly, controlling debt and excess spending, working towards short and long-term financial goals, and contributing to savings and investments.  It is difficult to manage just one of these aspects when a person is overwhelmed by debt.

 

Fortunately, the federal bankruptcy laws provide an answer for individuals living beyond their means and buried in debt.  Bankruptcy offers a legal means to restructure or eliminate your debts while protecting your family’s assets including real estate, vehicles, or retirement accounts.  During bankruptcy creditors cannot contact you directly and the vast majority of debtors do not lose any property.

 

If you are drowning in debt, don’t be fooled by a high credit score.  Your financial house is built on sand and it is time to rebuild on solid ground.  Consult with an experienced bankruptcy attorney and discover how the federal law can get you back on the path to financial health.

Fears & Nachawati Law Offices

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

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

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