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

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

    • Experian Plus Score ranges from 330-830.

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

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

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

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

 
For those involved in a Bankruptcy, rest assured that your Bankruptcy case will not prevent you from getting married.  For those involved in a Chapter 13 Bankruptcy however, your upcoming marriage may have an effect on your case.
 
In a Chapter 13 Bankruptcy, you are required to pay your disposable income into your bankruptcy plan in order to pay back your creditors.  The calculation to determine your disposable income includes all household income.  Even if you file an individual case, as opposed to a joint case with your spouse, your spouse’s income is still included as the household income.  For those who get married after their case is filed, their household income may increase if their new spouse is employed.  The Bankruptcy Trustee will want to review their income to see if you can afford a higher return to your creditors.  While your new spouse’s credit will not be affected by your bankruptcy, their income may still come into play.   However, your spouse will have their separate expenses which they were responsible for before the marriage.  
 
If you decide to get married during your bankruptcy, congratulations!  Also, discuss your situation with your bankruptcy attorney who can assist you making any necessary changes to your bankruptcy plan and make sure any changes fit inside your budget. 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.
 

Chapter 13 Discharge

The discharge is the overall of any consumer bankruptcy case.  This is occurs at the conclusion of the case and it is a permanent injunction that eliminates the dischargeable debts.  A chapter 13 debtor is entitled their discharge after they complete of their chapter 13 plan payments and so long as the debtor has:

1.      1. certified that they have made all domestic support obligations (child support and/or alimony) that came due during the case  (if applicable);

2.       2. has not received a discharge in a prior case filed within a certain time frame see How Often Can I File Bankruptcy? ; and

3.      3.  completed an approved course in financial management course  

The court will enter the discharge order an opportunity for notice and if necessary a hearing.

The discharge releases the debtor from all debts provided for by the plan and these creditors may no longer initiate or continue any legal or collection action against the debtor. 

 

 In order to be eligible to file chapter 13 bankruptcy there are certain requirements that must be met.  First of all only individuals can file for chapter 13.  In other words corporations, partnerships, business and municipalities cannot file chapter 13, although there are other reorganization chapters which they can file.   Although an individual who is self-employed or operating a business can file a personal bankruptcy.
                Additionally, 11 U.S.C. § 109 places debt limits on chapter 13 as well. Currently a debtor may not have more than $383,175 in unsecured debts and $1,149,525 in secured debt. These amounts are adjusted periodically to reflect changes in the consumer price index and it is important to verify the current limits.  The US Courts usually provide the information on their website

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.

During the recent Republican debate in Cleveland, Donald Trump stated that he has never filed a personal bankruptcy. However, his companies have filed for Chapter 11 bankruptcy protection four times in 18 years. How is this different from rapper Curtis Jackson, better known as “50 Cent,” who filed personal Chapter 11 bankruptcy earlier this summer?
 
Jackson’s Chapter 11 bankruptcy is a personal reorganization bankruptcy. The Bankruptcy Code allows an individual may file for financial reorganization under either Chapter 11 or Chapter 13. Both Chapter 11 and 13 stop collection activities while the individual formulates a repayment plan. In some cases the bankruptcy court may approve a plan to restructure or change personal debts. For instance, liens on secured property may be stripped off, interest rates changed, repayment times lengthened, and some debts may be paid “pennies on the dollar” or discharged without payment.
 
Most individuals seeking a repayment plan and reorganization of personal finances choose Chapter 13 rather than Chapter 11. Chapter 11 is a more complex bankruptcy process and is used primarily by businesses to reorganize (a company cannot file under Chapter 13). An individual, such as Mr. Jackson, is ineligible to file under Chapter 13 if the person owes more than $383,175 in unsecured debts (such as a personal judgment, credit cards, and medical bills), or more than $1,149,525 in secured debts (such as mortgages and car payments).  Mr. Jackson reportedly owes in excess of $28 million.
 
On the other hand, Donald Trump avoided personal bankruptcy by incorporating his business activities.  His first business bankruptcy, a 1991 case involving the Trump Taj Mahal in Atlantic City, left his business more than $3 billion in debt. Unfortunately, Mr. Trump himself was not completely insulated from this financial collapse. In exchange for a lower interest rate and more time to make loan payments, Mr. Trump gave up half his ownership and equity in the Trump Taj Mahal, and sold off personal assets.
 
During that time, Trump told The Washington Post that he passed a beggar in New York and said to his now ex-wife, model Marla Maples, “You see that man? Right now he’s worth $900 million more than me.”
 
If you are struggling financially, speak with an experienced bankruptcy attorney and discuss your financial strategies. The federal law can be a useful tool to reorganize business or personal liabilities and provide for a more successful future.
 
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.

Bankruptcy Code sections are like little boxes. Sometimes, the facts of a bankruptcy case will fit neat and tidy into a box. Other times, judges, trustees, and attorneys disagree whether a case can fit inside a bankruptcy box. 

 
One example of this is lien stripping a home mortgage during a Chapter 13 bankruptcy case. The general rule allows a Chapter 13 debtor to strip-off an entirely unsecured junior mortgage. In other words, if you own a home worth $400,000, and the amount owed on the first mortgage is $400,000 or more, you can strip-off any junior mortgage (like a second mortgage or a HELOC). Because the senior mortgage is more than the equity available in the home, there is no equity to secure any part of the junior mortgage. The bankruptcy court can declare the junior mortgage an unsecured debt and strip-off the lien securing the property. The junior mortgage debt is paid at the same rate, or discharged, along with all other unsecured debts in the case.
 
Simple, right?
 
But what if the facts of your case do not fit neatly into this bankruptcy box? Take, for example, the case of Serge and Lori Boukatch of Arizona. The Boukatches filed Chapter 13 bankruptcy in 2011. The couple listed their home at $187,500 and two liens: a first mortgage to Wells Fargo Bank in the amount of $228,300; and a second lien to MidFirst Bank amounting to $67,484.96. The bankruptcy court subsequently converted the case, and the Boukatches received a Chapter 7 discharge in 2013.
 
In 2014 the Boukatches filed a second Chapter 13. They claimed that the prior Chapter 7 bankruptcy had discharged their personal liability on the MidFirst Bank junior lien and asked the bankruptcy court to strip-off its entirely unsecured lien. The bankruptcy court refused to lien trip in this situation because they were ineligible for a Chapter 13 discharge, but the 9th Circuit Bankruptcy Appellate Panel (“B.A.P.”) allowed the stripping.
 
The B.A.P. discussed three approaches to lien stripping in a Chapter 13 case, ultimately agreeing with the third approach: that nothing in the Bankruptcy Code prevents lien stripping even where discharge is unavailable. “Third approach” courts hold that the mechanism triggering the lien-strip is completion of the plan rather than discharge. Therefore, when a debtor completes his or her plan, the provisions of the plan, including lien stripping, become permanent. The B.A.P. stated that full repayment of the debt secured by the lien is not required because the Bankruptcy Code only requires full repayment of “allowed secured claims.” The panel concluded that “the wholly unsecured status of MidFirst’s claim, rather than Debtors’ eligibility for a discharge, is determinative.”  
 
Bankruptcy is not a one-size-fits-all process. Fortunately, a skilled attorney can find the right-sized box for your bankruptcy issues. If you are experiencing financial difficulties, speak with an experienced bankruptcy attorney and discover how the federal law can help you.
 
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.

It may sound funny, but a new car purchase and a bankruptcy filing often go hand-in-hand. Bankruptcy reorganizes personal finances, and sometimes purchasing a new car is part of that reorganization. 

 
Chapter 7
In some Chapter 7 cases it may be advantageous for an individual to purchase a new car before filing bankruptcy. If the individual has a good enough credit score, it may make sense to purchase a new car since credit rates and terms may change after the bankruptcy is filed. 
 
In other cases it makes sense to purchase a new vehicle after a Chapter 7 bankruptcy filing. Individuals with very bad credit and outstanding debts may find that they are unable to finance a vehicle before filing bankruptcy. However, after the bankruptcy is filed, financing may be available. Why?
  • •The individual has resolved the outstanding debts;
  • •The individual’s debt –to-income ratio is usually low;
  • •The Chapter 7 debtor can only receive one Chapter 7 discharge every 8 years;
Some lenders will approve a new car loan immediately after the debtor files bankruptcy with the assistance of an attorney; others require that the debtor first attend the 341 meeting; and still others require that the debtor receive a discharge before approving a loan.
 
Chapter 13
Like a Chapter 7 debtor, an individual contemplating Chapter 13 bankruptcy may find that purchasing a new car before filing bankruptcy is in his or her best interest. A unique feature of Chapter 13 is the ability to “cram-down” many vehicle loans. In 2005, Congress (at the behest of big banks) stopped debtors from cramming-down vehicle loans to value unless the loan is older than 910 days (approximately two and a half years). However, many bankruptcy courts will allow a Chapter 13 debtor to cram-down the interest rate, and sometimes any negative equity from a trade-in that was rolled into the loan.
 
What this means is that if you purchase a new car before Chapter 13 bankruptcy, you may be able to use the bankruptcy laws to reduce the interest rate, the term (and pay up to five years), and in some cases strip off negative equity. Since success in Chapter 13 depends on predictable finances, controlling auto expenses and repairs in critical. As a side note, a new car purchase may also be attractive in situations where there is excess disposable income. The individual may be faced with an option of paying on a new car or paying unsecured creditors (like credit cards or medical bills).
 
A debtor may also purchase a new car during after filing Chapter 13 bankruptcy. A Chapter 13 bankruptcy is a three to five year repayment plan under the supervision of the federal bankruptcy court. Consequently, the debtor must have the approval of the bankruptcy court before incurring a new car debt. Obtaining Court approval can be difficult to navigate and always depends on the debtor’s financial situation.
 
Auto loans are often a large part of an individual’s finances. The individual’s automobile situation should be discussed and all options reviewed before filing bankruptcy. In many cases a purchasing a new car is a sound financial management.
 
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.
 

If you happen to fall behind on your mortgage payments, then filing Bankruptcy may provide an option to help you catch up and get current on your mortgage.  Specifically, a Chapter 13 Bankruptcy will help the debtor reorganize their creditors and provide for the mortgage arrears to be paid out over a period of 36 to 60 months.  In addition, the Bankruptcy filing would prevent or delay an upcoming foreclosure if the case is filed prior to the sale date. 

Once a debtor files for bankruptcy, an automatic stay is immediately put into place.  The automatic stay, as provided under Section 362 of the Bankruptcy Code, prohibits creditors from continuing collection activity against the debtor during their bankruptcy case.  After the bankruptcy case is filed, the debtor, who may be at risk of foreclosure, must make payments to their Chapter 13 Trustee according to the terms of their Chapter 13 Plan.  The Chapter 13 plan will provide for the payment of the mortgage arrears, along with other creditors if applicable depending on a case by case situation.  If the debtor fails to make the payments according to the Chapter 13 Plan, then the bankruptcy court dismiss the case, or the creditor may petition the court to allow foreclosure proceedings to resume.

Chapter 13 allows the debtor to reorganize their debts and pay them off through a three to five year repayment plan.  If the debtor continues to pay each month, then filing for a Chapter 13 bankruptcy will provide an efficient way to prevent foreclosure and catch up on missed payments.  The debtor must be able to pay the Chapter 13 Plan payments and their regular mortgage payments each month, depending on the jurisdiction which their Bankruptcy case is filed. 

Filing a Chapter 13 bankruptcy is extremely beneficial if you are behind on your mortgage payments.  Due to the automatic stay, creditors will be unable to continue collection activities. You can focus on reorganizing your debts and create a payment plan that will satisfy all of your creditors. 

Foreclosure on homes often happens when lenders want to retrieve the remaining balance of a loan from the homeowner who has stopped making payments. Normally, the lenders will not begin the legal process until the homeowner skipped out on 3 or 4 months worth of payments.  Keep in mind, the foreclosure process varies in each state.  In Texas, foreclosures only take place on the first Tuesday of the month.  In addition, the creditor must provide certain notices informing you of the sale prior to any foreclosure date.  Although there are loss mitigation options available through some lenders, Chapter 13 Bankruptcy also provides an option to delay or prevent foreclosure while providing an avenue for you to catch up on the mortgage arrears.

Chapter 13 is often called “Reorganization Bankruptcy” because it allows you to reorganize your debts and prepare a payment plan. If your home is being foreclosed, then you can file for Chapter 13 and extend your repayment length.  Typical Chapter 13 cases range from 36 to 60 months and arrange monthly payments to your priority, secured, and in certain situations, unsecured creditors.  For many, Chapter 13 provides a beneficial option for people to catch up on the arrears by including the arrears in the Plan and spreading the amount out over five years.  While in Chapter 13, all payments must be made on time, including the regular on-going mortgage payments if they are not part of the Bankruptcy Plan. When the debtor completes all plan payments, the arrears on the mortgage will be cured and the debtor will exit the bankruptcy current on their mortgage.