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27

Feb 2010

I quit paying–how long after bankruptcy can I keep my house?

Posted by / in After Bankruptcy / 4 comments

Some people file bankruptcy just before the foreclosure .    They have given up trying to keep the house–just can’t afford it.  They want to get some time to save some money before they have to move.  They ask, how long do I have?

In Virginia, the short answer is at least three months.

When you file Chapter 7 bankruptcy, you are protected by the automatic stay.  A stay is a court order.  And the automatic stay is, automatic.  Everybody who is trying to take your money or property is automatically told to stop.    That includes the foreclosure.  http://en.wikipedia.org/wiki/Automatic_stay.

The foreclosure lawyers need to get permission from the bankruptcy judge to start the foreclosure again.  (This is called relief from the automatic stay–they will send you a copy of that court paper.)  Getting that permission from the judge will take them about six weeks.

Once they get permission it should take them five or six more weeks to put through the foreclosure sale. (Should is an important word in that sentence and we’ll come back to it.  Sometimes they take a lot longer.)

In Virginia the foreclosure  take effect on the date of foreclosure sale.   All your rights are gone.  (Some states give you months afterward to buy the house back.  Not here.)

Now you are a tenant without a lease in your own house.  (Somewhat better than a trespasser, but not much.)  Most people want to be out by that point.  That will be about three months after the  Chapter 7 bankruptcy was filed.

What about cash for keys?  If you are still in the house after the foreclosure sale, what happens next?  It partly depends on the new owner.  Sometimes the new owner will decide to buy your cooperation–to pay you cash for keys, to get you to move out promptly and leave the place clean.

You don’t have any legal right to cash for keys, but if the new owner thinks that’s the easiest way to go, you can sometimes get several thousand dollars.  Click here http://robertweed.com/resources/CashforKeys.pdf for s sample cash for keys letter.

What if I get a mean owner? If you get a mean new owner, they will evict you.  That’s a two step legal process.  First, they will file an unlawful detainer–a court paper saying you have to be out.  In Virginia they can do that in less than three weeks.   A couple weeks after that, if you are not gone, the sheriff will put you out.  Here’s how the Fairfax County sheriff’s office describes eviction.  http://www.fairfaxcounty.gov/sheriff/eviction.htm.

What if they don’t foreclose? I said earlier that they should foreclose you about six weeks after they get permission from the judge.  Fairly often it takes them longer; sometimes a whole lot longer.     

The main reason for that, I think, is that the foreclosure lawyers are overwhelmed. There are way more foreclosures today than there have ever been, and they are having trouble keeping up with the work.  So sometimes they don’t get to you for a while; and some people get lost in the shuffle.

A second reason can be the condo fees. Even after the bankruptcy you are still the owner until the foreclosure sale.   The condo fees are an after bankruptcy debt and you have to pay them.   If the bank thinks they’ll have a hard time selling your unit, they might rather let you pay the condo fees for the next six months, and then foreclose you when they think they could sell your condo quickly.

(Make no mistake, your condo association will sue you–fast–for those after bankruptcy condo fees.  The foreclosure crisis is really hurting the condo associations and they have no room in their budgets for being reasonable.)

With those two factors, I am sometimes seeing five or six months go by after the bankruptcy before the foreclosure sale.

How can I plan? Obviously planning is easier if you have a smaller family.  If you can get everything pretty much packed up, ready to move, you can keep living for free (except for the condo or HOA) for as long as they will let you.  Be ready to go when they actually set up a sale date; and wait to see if they offer you cash for keys.

With a bigger family, that’s harder.  Finding a place to move to will be harder and you have to pay more attention to things like school districts.  Of course, you don’t need me to tell you everything is harder when you have to take care of your kids;  you know that.

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23

Feb 2010

Your credit report after bankruptcy

Posted by / in After Bankruptcy / 16 comments

<h2>Your credit report after bankruptcy</h2>

Getting back to good credit is one of the three big reasons to file Chapter 7 bankruptcy.   (The other two are so your creditors can’t call you and so they can’t garnish you.)  Unfortunately,  probably half the people who go through bankruptcy don’t get their credit report fixed.

How should your credit report look?  In 1990, the Federal Trade Commission issued a staff commentary explaining what the credit bureaus had to do to meet the requirement that people’s credit reports be complete and accurate.  (UPDATE:  When the Consumer Finance Protection Bureau took over this area from the FTC, the FTC deleted their commentary.)

The Federal Trade Commission staff  said three things.

First, that a debt discharged in bankruptcy should show a zero balance.  ( “A consumer report may include an account that was discharged in bankruptcy (as well as the bankruptcy itself), as long as it reports a zero balance due to reflect the fact that the consumer is no longer liable for the discharged debt.” )

Second, that a debt discharged in bankruptcy should show a discharged in bankruptcy status.   (“Similarly, a consumer reporting agency may include delinquencies on debts discharged in bankruptcy in consumer reports, but must accurately note the status of the debt (e.g., discharged …”)

Third, that the credit bureaus need to stay on top the the creditors to make sure they send in the required updates–specifically to update past due accounts that are then included in bankruptcy.  (“A consumer reporting agency must employ reasonable procedures to keep its file current on past due accounts (e.g., by requiring its creditors to notify the credit bureau when a previously past due account has been paid or discharged in bankruptcy…”)

In spite of these three requirements, spelled out by the Federal Trade Commission, probably half the people who are discharged in a chapter 7 bankruptcy still have errors on their credit report.  It’s better than it was ten years ago, when probably seven out of ten people came out of bankruptcy with these kinds of errors.  But it still stinks.

The problem now is largely practices that were legalized by a class action lawsuit in California that was supposed to fix the problem.  This is the Terri White class action and it didn’t help much.  To settle the law suit, the credit bureaus agreed to stop things that had already been stopped.  And they were allowed to ignore smaller problems that are getting more and more common, now that they have an official ok.

The big problem, that had mostly stopped, was putting after bankruptcy “charge offs”–meaning you owe the money but aren’t paying–instead of “discharge,” meaning you don’t owe it any more.

Ten years ago, several major credit card issuers always reported charge off instead of discharge.  First USA, Bank One and Fleet were the worst, and the credit bureaus did nothing about it.

A handful of law firms around the country started suing them.   James L Manchee in Texas,  http://www.mancheelawfirm.com/, Kathy Cruz in Arkansas, http://cruzlaw.com/ and Charles Juntikka, in New York City http://www.cjalaw.com/ .  Jason Krumbein, http://www.krumbeinlaw.com/, and myself here in Virginia.

All three of those brands were taken over in big mergers.  First USA and Bank One became part of Chase.  Fleet was gobbled up by Bank of America.  The new owners of those credit card lines didn’t want the hassle.  By the time of judge in the Terri White case told the credit bureaus they needed to fix that problem, it had pretty much been fixed.

New problems were created.    The credit bureaus are not required to update accounts that have been sold.  HSBC, when they get notice of a bankruptcy, always “sells” their accounts.   (Who is buying bankruptcy accounts?)   Then they say–both HSBC and the credit bureaus–that they don’t have to show the account was discharged in the bankruptcy.  It just stays as a zombie account on your credit report.  You’ll notice this is the opposite of what the FTC said (although never enforced)–the the credit bureaus were supposed be sure the creditors told them when a past due account had been discharged in the bankruptcy.

The same rule applied to “minor” derogatories.   If the credit card is only 90 days past due, they can leave it as past due and never show the bankruptcy.

Even worse.  They can leave the bad credit sitting on your credit report if your account is closed.  More and more we are seeing bank and credit card companies just “close” your account when they get notice of the bankruptcy–and just park it on your credit, ignoring the fact that it was discharged by the bankruptcy.

What’s the lesson of all this.  When your bankruptcy is over, your credit report will probably not be right.  Unless you or your lawyers, check it, disputes it, and sues to protect your rights, it will look like some of your debts were missed by the bankruptcy.

That will drag down your credit score; and cause problems with future lenders, possible employers, and security clearance agents, who will want to know why this or that debt was not taken care of.

The bankruptcy is not really over until the credit report is right.

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