Unbeknownst to most debtors, or potential debtors, the day the bankruptcy petition is filed, your credit score drops to the lowest point possible: 350. Rebuilding your credit after bankruptcy may be daunting; however, it is not impossible.
In the days and weeks following your discharge, you will be inundated with offers from creditors. Because there are virtually no usury laws in the United States, these creditors will charge high interest rates because they know: 1. filing bankruptcy does not automatically make you financially responsible; and 2. you cannot file bankruptcy again until the statutory period of time has elapsed.* Essentially, this means, if you default, the creditor will use all legal means available to collect on the debt. For debtors who feel responsible enough to handle debt, there are ways to reestablish your credit over time making you a prime candidate for creditor’s very best rates.
Installment Accounts and Secured Debt
Every month that you pay your student loan, car loan, and mortgage on time, you inch one step closer to improving your credit rating. In addition to making timely payments on these accounts known as installment accounts, obtaining a secured credit card, or selecting a reasonable offer for an unsecured credit card, and paying the balance in full each month will enable you to reestablish your credit.
Although it may be tempting to lead an all cash lifestyle, it takes credit to build credit, therefore, unless you know that you are not able to control your credit card spending, it would be in your best interest to obtain and responsibly use credit. In as little as two to four years, your credit rating will qualify you for reasonable interest rates on unsecured credit cards, mortgages and car loans.
*a chapter 7 may be filed 8 years after a previous chapter 7 filing; a chapter 13 may be filed 4 years after a chapter 7 discharge.
Thursday, June 03, 2010
Tuesday, June 01, 2010
Why July Is The Best Month To File Bankruptcy
The best time to file bankruptcy is when you have taken an objective look at your finances and realize you just cannot go another day with out doing something to put an end to the nightmare that is your financial life - it is probably best to make this decision with a lawyer. Once the decision to file has been made there are a lot of documents that have to be gathered, I mean A LOT. Of the documents that need to be produced in order to prepare your petition are SIX months of paystubs.
Some people are very organized and know the exact location of every paystub received since puberty. Other people, make that most people, have to search through piles of documents in order to produce these documents and even then, some may still have to contact their human resources department for this information. If you are near the month of July and can put off filing your bankruptcy until then, July is the easiest time of month to file bankruptcy in terms of NOT having to produce six months of paystubs.
Because the income reported for the means test is income earned in the six months before filing, the first paystub received in July will reflect the money you made for the previous six months exactly. That’s right, file in July and check one more item off of your document production list!
Good luck!
Some people are very organized and know the exact location of every paystub received since puberty. Other people, make that most people, have to search through piles of documents in order to produce these documents and even then, some may still have to contact their human resources department for this information. If you are near the month of July and can put off filing your bankruptcy until then, July is the easiest time of month to file bankruptcy in terms of NOT having to produce six months of paystubs.
Because the income reported for the means test is income earned in the six months before filing, the first paystub received in July will reflect the money you made for the previous six months exactly. That’s right, file in July and check one more item off of your document production list!
Good luck!
Monday, April 12, 2010
CAN I BE ARRESTED FOR NOT PAYING MY CREDITORS
I recently received a call from a potential client wishing to file bankruptcy because he received a letter in the mail, from the court, stating that if he did not pay his credit card debt he would be arrested. I had to stop and think for a second, “does Maryland have a debtor’s prison that I somehow missed.” Of course NOT!!!!
This is not the 1800s and you are not going to jail for not paying your creditors. With the exception of not paying certain taxes, child support, fraudulent debts, and criminal-related fines, in most states debtor’s prison is not an option.
The last known instance of debtor’s prison in the United States was in 1833 when it was eliminated by federal decree. Sure, a garnishment may be levied against you, the items securing the debt may be repossessed, and you may wish you were in jail after taking home a pay check that is 25% lighter, but, the sheriff will not come to your home and arrest you. Having not seen the letter, I am apt to believe that this “letter from the court” was actually from a debt collection, or debt settlement, agency. With bankruptcy filings the highest they have ever been, debt settlement and debt collection agencies are suffering. It appears that these agencies have resorted to scaring individuals into paying their creditors by threatening them with jail time. Shame on these agencies! Attempting to collect on a debt by threatening jail time is a violation of the Federal Fair Debt Collection Practices Act and you should speak with an attorney about your rights and options under this act.
This is not the 1800s and you are not going to jail for not paying your creditors. With the exception of not paying certain taxes, child support, fraudulent debts, and criminal-related fines, in most states debtor’s prison is not an option.
The last known instance of debtor’s prison in the United States was in 1833 when it was eliminated by federal decree. Sure, a garnishment may be levied against you, the items securing the debt may be repossessed, and you may wish you were in jail after taking home a pay check that is 25% lighter, but, the sheriff will not come to your home and arrest you. Having not seen the letter, I am apt to believe that this “letter from the court” was actually from a debt collection, or debt settlement, agency. With bankruptcy filings the highest they have ever been, debt settlement and debt collection agencies are suffering. It appears that these agencies have resorted to scaring individuals into paying their creditors by threatening them with jail time. Shame on these agencies! Attempting to collect on a debt by threatening jail time is a violation of the Federal Fair Debt Collection Practices Act and you should speak with an attorney about your rights and options under this act.
Saturday, March 20, 2010
Are PayDay Loans Dischargeable in Bankruptcy?
Between household expenses, payments on secured debts such as your home and car, and everything else you have to do just to get by, you do not make enough to live comfortably. You are in over your head and payday loans seem like a quick fix. I’m not going to knock payday loans (at least not in this post) as they serve their purpose – when times are tight, a payday loan can help a debtor facing such dire situations as putting food on the table, paying rent, or getting to work. As long as the loan, and usually the enormous fee that accompanies it, are paid in full within thirty days of the origination date, then consider the fee the cost of not starving to death, being evicted or being fired. Payday loans become troublesome when one accumulates numerous loans in a short period of time and cannot pay down the principle.
Recently, a client owed $90 per month on a $300 loan. Unfortunately, the client had numerous loans and was only able to pay the loan “fee” for each loan every month. Per the terms of the agreement she signed with the creditor, the loan renewed itself each month. Like many people who have to take out these loans just to survive, especially during these dire economic times, this client became caught in the vicious cycle of only paying the fees each month and never paying down the principle. Eventually, payday loans, when combined with other unsecured debts, may become extremely overwhelming making bankruptcy an most appealing option.
Fortunately, payday loans are treated like any other unsecured debt when filing bankruptcy. So long as at least one payment has been made toward the outstanding balance, the loans are dischargeable in bankruptcy. On the other hand, if no payment has been made toward the debt, and if the loans were acquired within 90 days of the filing, there is the very real possibility that both the creditor and the Trustee will scream, “fraud” as such behavior can be used to establish intent to defraud creditors. As mentioned in a previous post, when such a motive is proven, the result can be catastrophic – jail and/or fine.
If you are drowning in payday loan debt, and also have a significant amount of other unsecured debt, you should contact a competent lawyer to discuss your options.
Recently, a client owed $90 per month on a $300 loan. Unfortunately, the client had numerous loans and was only able to pay the loan “fee” for each loan every month. Per the terms of the agreement she signed with the creditor, the loan renewed itself each month. Like many people who have to take out these loans just to survive, especially during these dire economic times, this client became caught in the vicious cycle of only paying the fees each month and never paying down the principle. Eventually, payday loans, when combined with other unsecured debts, may become extremely overwhelming making bankruptcy an most appealing option.
Fortunately, payday loans are treated like any other unsecured debt when filing bankruptcy. So long as at least one payment has been made toward the outstanding balance, the loans are dischargeable in bankruptcy. On the other hand, if no payment has been made toward the debt, and if the loans were acquired within 90 days of the filing, there is the very real possibility that both the creditor and the Trustee will scream, “fraud” as such behavior can be used to establish intent to defraud creditors. As mentioned in a previous post, when such a motive is proven, the result can be catastrophic – jail and/or fine.
If you are drowning in payday loan debt, and also have a significant amount of other unsecured debt, you should contact a competent lawyer to discuss your options.
Thursday, August 06, 2009
Too Young For Bankruptcy?
If you are old enough to have debt, you are old enough to file bankruptcy. Bankruptcy is designed to give debtors overwhelmed by significant amounts of debt a fresh start. Today, more than ever, young people are amassing huge amounts of debt. Though we are in a recession, the availability of credit to young people, especially young people on college campuses, has not dwindled. Young people suffer from instant gratification syndrome. “Buy now, pay later” is more of a suggestion than it is a motto.
Unfortunately, many young people have accumulated tens of thousands of dollars of debt – often before the age of 22. The combination of large sums of debt and the dearth of jobs in today’s economy are leading more young people to file bankruptcy. Fortunately, the young person that is ready to be more financially responsible will use bankruptcy for its intended purpose – a fresh start. If planned correctly, one could file bankruptcy, rebuild her credit and still become a homeowner all before the age of 30.
Upon receiving a discharge, the debtor will be flooded with credit card offers, the reason being: creditors know that one way, or another, they will get their funds because you will be unable to file chapter 7 again for 8 years. If you pick and chose wisely amongst these offers and make your payments on time, EVERYTIME, with absolutely no slip ups, you will often see an improvement in your score within 18 months. Most creditors do not look back more than three years when evaluating your credit worthiness. What this means is that you will still be able to buy a nice car and home when you are ready and you most likely will not have an unreasonable interest rate.
The bottom line is, though filing bankruptcy is a serious step, if done for the right reasons, and with a solid plan for rebuilding your credit rating, bankruptcy can be the first step to a fresh start in life.
If you are considering filing bankruptcy, be sure to discuss your options with a competent legal professional in your state.
Unfortunately, many young people have accumulated tens of thousands of dollars of debt – often before the age of 22. The combination of large sums of debt and the dearth of jobs in today’s economy are leading more young people to file bankruptcy. Fortunately, the young person that is ready to be more financially responsible will use bankruptcy for its intended purpose – a fresh start. If planned correctly, one could file bankruptcy, rebuild her credit and still become a homeowner all before the age of 30.
Upon receiving a discharge, the debtor will be flooded with credit card offers, the reason being: creditors know that one way, or another, they will get their funds because you will be unable to file chapter 7 again for 8 years. If you pick and chose wisely amongst these offers and make your payments on time, EVERYTIME, with absolutely no slip ups, you will often see an improvement in your score within 18 months. Most creditors do not look back more than three years when evaluating your credit worthiness. What this means is that you will still be able to buy a nice car and home when you are ready and you most likely will not have an unreasonable interest rate.
The bottom line is, though filing bankruptcy is a serious step, if done for the right reasons, and with a solid plan for rebuilding your credit rating, bankruptcy can be the first step to a fresh start in life.
If you are considering filing bankruptcy, be sure to discuss your options with a competent legal professional in your state.
Friday, July 31, 2009
Should I Go On a Shopping Spree Before Filing Bankruptcy?
Prior to the 2005 changes to the bankruptcy code, it was common practice for individuals contemplating bankruptcy to go on a shopping spree with the intention of having the debt discharged in bankruptcy. Boy have times changed!
When prospective clients come to me with the intention of filing bankruptcy, they often want to know if it would be ok to go on a shopping spree before we file. I tell them all the same thing: "the short answer is a resounding NO!" Any increase in normal spending habits just prior to filing bankruptcy could be considered fraudulent activity.
Going on a shopping spree just prior to filing for bankruptcy could be considered fraudulent if the objecting creditor or trustee suspect, and then prove, that you made these purchases and lacked the intent to pay for them. At the very least this new debt would become non-dischargeable. What this means for a potential debtor is when those purchases are no longer in fashion, or have become obsolete, he or she will still be paying for them. Further, if you give any of these purchases to family or friends as “gifts” you will be guilty of a fraudulent conveyance. If you are found guilty of such a transfer, the bankruptcy trustee could exercise his right to object to the discharge and/or prosecute you for abuse of the bankruptcy system - bankruptcy fraud.
Bankruptcy fraud, a felony, carries a fine of up to $250,000 and/or five years in prison. So the bottom line is, while the temptation to go on a spending spree may be great - JUST DON’T DO IT!
When prospective clients come to me with the intention of filing bankruptcy, they often want to know if it would be ok to go on a shopping spree before we file. I tell them all the same thing: "the short answer is a resounding NO!" Any increase in normal spending habits just prior to filing bankruptcy could be considered fraudulent activity.
Going on a shopping spree just prior to filing for bankruptcy could be considered fraudulent if the objecting creditor or trustee suspect, and then prove, that you made these purchases and lacked the intent to pay for them. At the very least this new debt would become non-dischargeable. What this means for a potential debtor is when those purchases are no longer in fashion, or have become obsolete, he or she will still be paying for them. Further, if you give any of these purchases to family or friends as “gifts” you will be guilty of a fraudulent conveyance. If you are found guilty of such a transfer, the bankruptcy trustee could exercise his right to object to the discharge and/or prosecute you for abuse of the bankruptcy system - bankruptcy fraud.
Bankruptcy fraud, a felony, carries a fine of up to $250,000 and/or five years in prison. So the bottom line is, while the temptation to go on a spending spree may be great - JUST DON’T DO IT!
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