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03

Aug 2019

“Just Don’t Pay” as an Alternative to Bankruptcy

Posted by / in Weekly Posts /

Bankruptcy Alternative: Just Don’t Pay

Some people want or need an alternative to Chapter 7 bankruptcy. 

Meet Henry Hudson and his wife Beth. They came to see me several years ago. Their alternative to bankruptcy was a two part plan: just don’t pay, and “call my lawyer.” Here’s why.

Henry and Beth were elderly, he was retired, she was working a little. They had credit cards they couldn’t pay, about $40,000.

They could file Chapter 7 bankruptcy and clear those debts. But they didn’t want to. They owned an investment that had lots of sentimental value, and if they filed Chapter 7 bankruptcy, the court would sell it. The creditors would only get 10 cents on the dollar or less, if it was sold, but the emotional loss to the Hudsons was more than they were willing.

“Call my lawyer!”

Consumer tells debt collectors to call my lawyer.

When the bill collectors call, tell them to “call my lawyer.”

So I told them, just don’t pay. (They were already about five months behind when they came to see me.)  And start taking the calls!  When they call, tell them “call my lawyer!” We’ll see if that get’s them to leave you alone.

Henry and Beth paid me $700 to rent my fierce reputation, plus $100 a month. We met in person every three or four months. Years went by. I told them, if the bill collectors leave you alone too long, they are too late.  That’s called the statute of limitations.

How Long is the Statute of Limitations?

Original creditors, like the credit card companies, have five years to take you to court. If they wait longer than that, they are too late. (That’s in Virginia; other states can be more or less.) For debt buyers, people like LVNV, Midland, Portfolio, it’s probably only three years, arguably two.  (The three years was based on Opinion of the Attorney General 10-028.  The current Virginia Attorney General appears to have deleted it.)

Finally, years later…

Finally, years later, Henry got court papers from one the biggest credit cards, around $8,000.  We had met just two months before and I told them I thought time had run out and everybody was SOL (Statute of Limitations.) Now there’s court papers.

We File Chapter 13

Chapter 13 is a payment plan through the bankruptcy court.  In Chapter 13, you don’t put your property at risk (unless you want to sell it) because you are paying your debts. Henry and Beth file a plan to pay their debts in full.

Pay in full? Yes, but not $40,000 that would have been payment in full when we first talked. Pay in full all the debts that were not SOL.  Turned out only one $700 recent credit card was not too old under the Statute of Limitations.  Including the one that had filed the warrant in debt. 

So that $700 card got paid in full; and the other debts were just gone.

This Doesn’t Always Work

We were helped that Henry and Beth did NOT owe money to Discover. Discover is very quick to sue. Their cars were paid for. And they were renters, not home owners. That means their credit report did NOT show any debts actually getting paid.

It’s My Job to Suggest the Best Plan for You

As a lawyer, I’m a fiduciary. I’m required by law and legal ethics to give you the best advice I have. Even though I’m a bankruptcy lawyer, sometimes a non-bankruptcy solution works best. And when it does, I tell you.

For most people, bankruptcy works.

But when “just don’t pay” will work better, I’ll tell you so.

PS  More on the statute of limitations

The Washington Post just had this interesting article, about how debt collectors can try to get around the statute of limitaitons.

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16

Jul 2019

Reaffirmation: It’s like an episode of Law and Order.

Posted by / in Chapter 7, Weekly Posts /

“What was that? Law and Order?”

Today I was at the bankruptcy court asking the Judge to approve two credit card reaffirmations. One for a little more than $500; one for a little less.

Both because my clients had a good relationship going back years with their credit union. So they wanted to keep them.  (Reaffirmations require approval by the judge; and the judge is supposed to go easier on credit union reaffirmations. See 11 USC §524(m)(2))

Since the judge is supposed to go easy on credit unions, I thought we had a good chance of getting them both approved.

The Judge approved the one for less than $500; but she turned the other one down.

Bankruptcy Judge will turn down your reaffirmation

If the bankruptcy Judge thinks there’s any question about your ability to pay, she will turn down your reaffirmation.

“What was that?” said the wife of the consumer whose reaffirmation was approved. “Was that like, Law and Order?”

Our Judge does NOT like reaffirmations. So, if you want your reaffirmation approved here, the judge will go line by line through your budget. “What’s this dental insurance?” “How much is your car payment?”

The consumer whose reaffirmation was turned down is divorced, and said she often doesn’t get her support paid on time. That was enough to get her turned down.

The one that was approved was a married couple, both with steady work, and no kids.

If the judge thinks there’s any question at all that you can’t afford to pay–even on a bill that’s only $17.00 a month–she’ll turn it down.

In a simple Chapter 7 case here in Alexandria Virginia, your bankruptcy is approved in a three minute trustee hearing.

Getting a reaffirmation approved is seven minutes of tough cross examination by the Judge.

 

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13

Jul 2019

Credit scores after bankruptcy are close to national average, in just three years

Posted by / in After Bankruptcy, Blog, Weekly Posts /

I just finished a survey of people who filed bankruptcy with me three years ago. Here’s one big thing I found out: credit scores three years after bankruptcy are almost the national average.  

Right about half of the people who filed bankruptcy with me three years ago have a score above 670. A 670 score is considered “good” by Experian.  That’s a little less than the population as a whole, where 60% of people are above that 670 score. 

Some people will be surprised that credit scores after bankruptcy are that high. 

There’s an urban legend that you have to go for seven years with bad credit after bankruptcy.  People tell me all the time they expect to go seven years with bad credit. Other people wonder if there credit score will drop below 400.  

Have you heard anything like that?  It’s not true. 

Besides this survey of people who filed bankruptcy with me, I can point you to two studies by the Federal Reserve.  The Federal Reserve Bank of New York found that “the individuals who go bankrupt experience a sharp boost in their credit score after bankruptcy.” And, the Philadelphia Federal Reserve found that people with a before bankruptcy 540 can expect an after bankruptcy credit score of around 620.

Debt settlement scammers, nosy family members, and some financial gurus will want you to think filing bankruptcy ruins your credit.  But, none of them will put it in writing, because it’s just not true.

I’m surprised the credit scores after bankruptcy aren’t higher.

I think nearly everybody can get their credit scores above 670 three years after bankruptcy.

credit scores after bankruptcy go up

I think nearly everybody should have a credit score after bankruptcy above 670 in three years.

The answer is in another question from my survey. My survey asked people if they got a new credit card in the first year after the bankruptcy. And 43% said, “No.”  That’s a problem.

People tell me, when we go to the bankruptcy hearing together, “I never want to see another credit card.” But, if you want a good credit score after bankruptcy, you have to.

Bankruptcy freezes your old bad credit, it doesn’t erase it. So you need to build good credit on top of it. 

That means you need to go out and get a credit card.  (You’ll get some offers in the mail, but you can also internet search ‘credit scores for bad credit.’) Charge gasoline every month; pay it in full every month.  In that way, within six months you’ll get several more good offers; use each card once a month and pay them in full.  Each week use a different credit card to charge your gasoline, and pay them all in full.  You want to get credit cards with higher credit limits, but you want to keep your actual balances low.

Summary What Does it All Mean?

If you are considering bankruptcy, don’t believe the urban legends. Three years after bankruptcy, your credit can be almost as good as new.  If you have filed bankruptcy, don’t turn your back on your credit. Carefully build a yourself a good credit score after bankruptcy.

Want to find out more on your after bankruptcy credit score? 

After bankruptcy, check these five websites. 

After bankruptcy, getting your credit report right.  

Mike’s after bankruptcy credit score is 681.

 

 

 

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18

Nov 2018

Three months later, Mike’s After Bankruptcy Credit Score is 681

Posted by / in Weekly Posts /

Three months later, Mike’s After Bankruptcy Credit Score is 681

Last Friday, Mike sent me this screenshot, showing his after bankruptcy credit score is 681.

After bankruptcy credit score

Three months later, Mike sent me this screenshot.  Mike’s after bankruptcy credit score is 681.

 

 A 681 credit score is, barely, considered a “good” score by Experian and CreditKarma. 

Mike had filed bankruptcy with me in April and it was approved and done in September.  So his score was what many lenders would call “good” just three months after bankruptcy.

Mike and I did a little extra work to get there.

I tell people that your credit score two months after bankruptcy, should be between 600 and 640, according to studies done for the Federal Reserve.    

Mike’s score was a little low, so I told him to send me his credit report, so we could look at it together.  

Together we found the culprit.  His credit union reported him as late for the four months he was going through the bankruptcy.  Then they got it right.

It seemed like a small thing, but Mike and I disputed it.  

The 681 credit score was the result.

Your After Bankruptcy Credit Score is Part of My Five Year Warranty.

I encourage all my clients to send me their credit reports, if their after bankruptcy credit score is less than 600.

That’s part of my five year warranty. 

For most people, bankruptcy is a powerful tool for credit repair.  That’s why it’s so important for a bankruptcy lawyer to also understand the Fair Credit Reporting Act.  

If your credit report and credit score have after bankruptcy mistakes, then you haven’t really gotten the fresh start that’s your right under the bankruptcy law.

All I Do is Bankruptcy Law.

That includes checking your after bankruptcy credit report and after bankruptcy credit score.

 

 

 

 

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05

Aug 2018

How a cheap car payment can help you on the bankruptcy means test.

Posted by / in Before Bankruptcy, Chapter 13 /

How a cheap car payment can help you on the bankruptcy means test.

The 2005 Bankruptcy law, known BAPCPA or sometimes BARF, was designed to make bankruptcy much more painful for families making over the average income in each state.  For Virginia, in the summer of 2018, that’s $103,549 for a family of 4. Or $111,949 for a family of five. 

Bankruptcy means test applies to families of 5 over $111,949

Bankruptcy means test applies to families of 5 over $111,949

The bankruptcy means test determines whether families making over that average income can be approved for Chapter 7 anyway.  And if not eligible, how much they have to pay for five years in Chapter 13.

The bankruptcy means test formula is arbitrary.  It was designed to be arbitrary. Congress, and the credit card companies, thought that bankruptcy judges were too easy.

Most families around here, making too much to get approved for Chapter 7, end up failing at Chapter 13. Without careful Chapter 13 planning, the bankruptcy means test will put you into a Chapter 13 plan that you are not able to afford for five years.

Here’s one example where careful Chapter 13 planning can make all the difference. 

John and Tanya is live Woodbridge in a house they own with two children.  John is stationed at Joint Base Andrews; Tanya is home with the kids, one child needing special attention.

Trying to handle the debts, they have gotten by as a one car family, and John’s car now has 110,000 file on it.  

If John and Tanya go into Chapter 13 now, they get a budget allowance of $497 for the car payment (regardless of what the payment really is) and $221 for gasoline, car repair and car insurance.  It will be impossible for John to hold his car operating expenses, gas, repairs, insurance, below $221 for five years on a car that already has 110,000 miles.

John and Tonya  talk to me before their credit is totally shot. So I can point out to them that they are much more likley to survive Chapter 13 for five years, if they go out and get a low payment second car now.

Tanya buys a brand new Nissan Versa, sale price $13,500, at 4.5% for five years. Her payment is $227.00 monthly.  That $227 payment counts as $497 on the means test.  That frees up for the family budget $270 a month. (That’s $497 means test ownership allowance, minus the $227 actual payment.) That $270.00 can go to pay things like sports for the kids, which the bankruptcy means test budget does not allow.

And they get a second $221 monthly for operating expenses.  John drives the new Nissan Versa to work, and Tanya takes the older car for errands around town. They can hold their gasoline, repair and insurance below the new total operating allowance of $442.

(I should note here that it would be illegal for me to tell John and Tonya to go out and finance a car.  But it was legal for me to tell them that it’s legal for them to do it.)

People say that bankruptcy should be a last resort. But you don’t want it to be a last minute, last resort.  Careful Chapter 13 planning is very important for getting the best result.

 

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14

Jul 2018

Another Family Wastes Thousands with Freedom Debt Relief

Posted by / in Weekly Posts /

Another Fairfax County Family Wastes Thousands with Freedom Debt Relief.

I filed a bankruptcy case this week for Alexander and Alina yesterday.
 
They had been enrolled with Freedom Debt Relief for over five years–the longest enrollment I ever heard of. And according to Freedom Debt Relief, they had only four monthly payments to go until everything was settled.
 
So why were they coming to see me? During that same five and a half years, they had two cars repossessed, and their townhouse went to foreclosure. Trying to “resolve” your credit cards when you can’t make the car payment is NOT a good idea.
 
But one other thing hit me. Although Freedom Debt Relief said all but one of the cards has been settled and paid, their credit report was very different. The Experian credit report showed only one card as settled, and the other five were still reporting monthly as late.
 
So whatever “settlement” Freedom Debt Relief did, it did NOT include getting the creditors to report paid in settlement on the debts. Seeing that credit report brought my low opinion of Freedom Debt Relief even lower.
 
(True story except I changed the names of Alexander and Alina.)

 

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NORTHERN VIRGINIA BANKRUPTCY LAW OFFICES