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.
- 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.
- 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.
- 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.
- -Payment History (35%)
- Amounts Owed (30%)
- Length of Credit History (15%)
- Types of Credit in Use (10%)
- New Credit (10%)
A lot of my clients have not previously filed for bankruptcy. One of the most common questions is gaining an understanding of the general timeline and process of your typical Chapter 7 Bankruptcy. In general, Chapter 7 is the quickest bankruptcy to complete. The typical Chapter 7 case is completed within three to six months of the filing date. Keep in mind, before you can file a Chapter 7 bankruptcy, you need to complete your pre-filing Credit Counseling Course from a certified credit counseling agency. You must also qualify for Chapter 7 by passing the Means Test, which will be completed by your attorney and filed as part of your petition and schedules.
In order to file Chapter 7 Bankruptcy, you will need to complete and pass a Means Test, which is filed as part of your bankruptcy paperwork with the Court. In general, the Means Test takes a six month look at your income and compares that with the median income for a similar family in your state. If you earn more than the median income, minus allowable expenses, and show enough disposable income to pay back your creditors while maintaining a minimal standard of living, you may not qualify for a Chapter 7 bankruptcy. However, this does not mean you cannot utilize the protection of the bankruptcy court to help you resolve your financial difficulty.
In the event you do not qualify for a Chapter 7 Bankruptcy, you may still qualify for a Chapter 13 Bankruptcy. Under Chapter 13, your attorney will calculate a payment plan, which generally ranges from 36-60 months, to provide payments to your creditors in line with your budget. At the completion of your bankruptcy plan, you are entitled to a discharge of the remaining debt, subject to certain restrictions. Your bankruptcy plan may only provide for a return of a certain percentage of your unsecured debt, such as medical bills and credit cards. In the event there is a portion of this debt remaining, it is subject to discharge at the end of the case. While Chapter 13 takes longer to complete than a Chapter 7, you are still protected from collection efforts, foreclosure, repossession, and lawsuits while you are in an active bankruptcy. Although you will be placed on a budget, you will have peace of mind by being protected from your creditors while maintaining a manageable payment plan to help get you on the right financial path.
If you have any questions about Chapter 7 or Chapter 13 Bankruptcy, contact the attorneys at Fears Nachawati today. Call 1.866.705.7584 or send an email to firstname.lastname@example.org for a free consultation.
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.
- •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;
The stress of filing for bankruptcy is extremely hard on individuals and families. Most individuals going through the bankruptcy process are stressed, tired of creditors calling and just want to get their financial situation in order. The last thing that you want to worry about the effects that bankruptcy has on your job and employment opportunities.
If you file for a Chapter 7, then most employers will not find out about the case. While Court documents are typically public information, the only way an employer will generally find out is if you tell them, or if a creditor has began the process to garnish your wages. Although there is no wage garnishment in Texas for consumer debt, filing for bankruptcy will stop withholding your wages. If you file for a Chapter 13, then there is a possibility that the judge will order your Chapter 13 payments to be deducted from your earned income. In that case, your employer will be notified.
Filing for bankruptcy has no impact on your employment. According to 11 U.S.C. § 525(b), no private employer may terminate employment, or discriminate, against an employee for filing bankruptcy. You cannot get fired nor will you be refused a position due to filing for bankruptcy. However, it may be wise to speak to your employer about your financial situation. Some people who have a lot of debt or are considering bankruptcy have a lot of weight on their shoulders. Being open and honest with your employer will allow them to create an environment that is comfortable for you to resolve your personal matters.
A Chapter 7 bankruptcy is an erase-your debts-start-fresh bankruptcy. It is meant to give an individual a chance to begin anew on a financial path without the burden of overwhelming debts dragging him or her down. On the other hand, Chapter 7 bankruptcy is not intended as a way to legally hide from debts the person can afford to pay.
That tension that felt most keenly when dealing with an individual’s income tax refund during Chapter 7 bankruptcy. On the one hand, the debtor is excited about his Chapter 7 “fresh start” and is eager to use his after-bankruptcy tax refund to help him along with his new financial future. On the other hand, his creditors are eyeing his income tax refund as a pre-bankruptcy asset that should be used to repay his debts.
Both creditors and debtors have a claim on the debtor’s anticipated income tax refund. The debtor is entitled to the refund, even though it is not yet received. Consequently, the debtor’s interest in receiving this refund must be included in the debtor’s bankruptcy estate. Because it is property of the estate, the debtor is able to use legal exemptions to protect all or a part of the tax refund. The remaining non-exempt portion must be paid over to the bankruptcy trustee for distribution to creditors. Often debtors are able to exempt enough of an expected income tax refund that it will make the remaining sum de minimis, or so little that it is not worth the trustee’s time or effort to take and distribute the funds.
The debtor must turn over non-exempt tax money even if the refund is not received until after the debtor receives a discharge. The only timing that matters is whether the debtor had a legal interest in the income tax refund at the time he filed the case. When the refund is actually received by the debtor is of no consequence. In many cases a trustee will leave a debtor’s case open until the debtor has both filed and received his income tax refund. This may mean remaining in bankruptcy for many months longer than expected.
The best way to avoid income tax refund problems during bankruptcy is to file the case after the tax refund is both received and spent. Your attorney can direct you on how to spend your tax money and avoid further bankruptcy complications.
Another way to protect non-exempt money from an income tax refund is to apply the non-exempt portion of the expected income tax refund to next year’s taxes. The IRS will keep the tax overpayment and use it for taxes owed in the future. The Tenth Circuit case of Weinman v. Graves, 609 F.3d 1153 (10th Cir. 2010) holds that the bankruptcy trustee cannot force the IRS to turnover a tax refund that is held to pay future taxes. The election to apply the refund to a future tax liability is irrevocable under section 6513(d) of the Internal Revenue Code. Consequently, the debtor’s interest in the refund when he files bankruptcy is limited to what is left after the IRS applies the money to next year’s tax liability.
If you are considering filing bankruptcy and expect a large income tax refund, speak with an experienced bankruptcy attorney. Your attorney can discuss your options and help you choose the right course of action for the maximum financial benefit using the federal bankruptcy laws.
With malice toward none, with charity for all, with firmness in the right as
God gives us to see the right, let us strive on to finish the work we are in,
to bind up the nation’s wounds, to care for him who shall have borne the
battle and for his widow, and his orphan, to do all which may achieve and
cherish a just and lasting peace among ourselves and with all nations.
– Abraham Lincoln, Second Inaugural Address, March 4, 1865
Abraham Lincoln is considered the father of the Veteran’s Administration, which arose out of the national desire to care for civil war veterans. From 2000 to 2013, the number of veterans who were receiving disability payments rose by almost 55 percent, from 2.3 million to 3.5 million. Some of these veterans are permanently and totally disabled, and unable to work. Some struggle with debts that they cannot pay with their monthly VA check.
It is important to have an experienced attorney working on your side if you file bankruptcy when in receipt of VA disability compensation benefits. Many debtors (and some attorneys!) believe that VA disability benefits are entirely excluded from the bankruptcy process. This is not true. Whether VA disability benefits are protected during bankruptcy can depend on the circumstances of the case.
VA disability compensation is included in the debtor’s Chapter 7 Means Test calculation. However, many veterans in receipt of VA disability can avoid the Means Test altogether if the individual is (1) a veteran who is entitled to compensation under laws administered by the Secretary for a disability rated at 30 percent or more, or (2) a veteran whose discharge or release from active duty was for a disability incurred or aggravated in line of duty. Additionally, the debts in the veteran’s bankruptcy case must have been “primarily” incurred while on active duty, or while performing a homeland defense activity. “Primarily” is generally interpreted by the bankruptcy courts as greater than 50%.
The Bankruptcy Estate
Even though VA disability compensation is used to determine the veteran’s eligibility to file Chapter 7 bankruptcy, these benefits are not part of the debtor’s bankruptcy estate. In other words, the VA disability compensation is protected from creditor garnishment and is also protected from the trustee during bankruptcy (although there are exceptions including federal offsets and child support debts). Generally, the debtor cannot be forced to use this money to pay creditors during bankruptcy.
If you are receiving VA benefits and need bankruptcy relief, consult with an experienced attorney who can protect your money and discharge your debts. Your attorney can review your situation and advise you on the right way to avoid trouble during your bankruptcy case.
Everyone knows that attorneys are masters at avoiding direct answers to simple questions. What is not commonly known is that what may seem like a simple question can actually be many compound questions in disguise. Take, for example, the question, “Do bankruptcy laws vary from state to state?” The simple answer to this question is “no and yes.” Here’s why:
The “no” part:
The Bankruptcy Code is a uniform law enacted by Congress that applies to all bankruptcies throughout the United States. See Article 1, Section 8, Clause 4 of the U.S. Constitution. Federal bankruptcy courts have exclusive jurisdiction over bankruptcy cases, so state courts have no authority to decide bankruptcy cases. As a result, bankruptcy laws to not vary from state to state.
The “yes” part:
The federal law allows states to decide what real and personal property is exempt (and therefore legally protected) during a bankruptcy case. In some states you may choose either from a list of federal legal exemptions or state exemptions, and in other states you may only use state exemptions. Consequently, a Chapter 7 bankruptcy debtor in Florida may be able to keep his home and protect its equity, while a Missouri debtor in the same situation may lose the house to the Chapter 7 trustee.
Additionally, how the bankruptcy laws are interpreted and applied can vary from jurisdiction to jurisdiction. For instance, currently Chapter 7 bankruptcy debtors in the Eleventh Circuit (Alabama, Florida, and Georgia) are allowed to strip off and discharge an entirely unsecured junior mortgage (i.e. the first mortgage entirely secures the value of the property meaning the junior mortgage is not secured by any value). No other jurisdiction allows this in Chapter 7 cases. Sometimes the United States Supreme Court is asked to resolve differences between the federal circuits, and, in fact, this issue is currently on appeal to the high court.
As you can see, “simple” questions on the law are often the toughest to answer. The best way to obtain legal advice for your financial situation is to sit down with an experienced bankruptcy attorney. Your attorney can explain how state and federal laws apply and how to use those laws to get the best result in your case.
On November 17, 2014, the U.S. Supreme Court recently agreed to hear two cases that could have a major impact on debtors across the country. The cases are Bank of America v. David B. Caulkett and Bank of America v. Edelmiro Toledo-Cardona, two Chapter 7 cases on appeal from the Eleventh Circuit Court of Appeals (Alabama, Georgia, and Florida). In each case, the appellate court allowed the bankruptcy debtor to strip off an entirely unsecured junior mortgage held by Bank of America. While lien stripping second and third unsecured mortgages is common across the country in Chapter 13 cases, only the Eleventh Circuit has allowed Chapter 7 debtors to rid themselves of junior liens on their underwater homes.
Bank of America argues that the Eleventh Circuit holding is contrary to the Supreme Court case of Dewsnup v. Timm, which found that “liens pass through bankruptcy unaffected.” However, most courts limit the holding of Dewsnup in Chapter 13 cases to liens secured by equity. The question boils down to whether the Bankruptcy Code prevents a Chapter 7 debtor from stripping off a secured lien that is not secured by any equity in the property. Once the mortgage lien is extinguished and the debt is discharged, the lender has no recourse against the debtor or the property.
If the high court agrees with the Eleventh Circuit, that ruling may pave the way for debtors across the country to extinguish junior mortgages in Chapter 7 without payment. Supreme Court decisions are binding on all federal courts.