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15

Aug 2021

After Bankruptcy: Please Don’t Go Out and Co-Sign for a Car

Posted by / in After Bankruptcy, Weekly Posts /

After Bankruptcy: Please Don’t Go Right Out and Don’t Co-Sign for a Car

Got an email last week that made me sad.  Cherry filed Chapter 7 bankruptcy back in 2017.  She recently went to buy a car and ended up getting financed by Santander at 21%. After she did that, she asked why is her credit score so low, four years after bankruptcy?

When I looked at her credit report, here’s what I saw. Two months after her bankruptcy was discharged, she got a car loan with Regional Acceptance.  Regional Acceptance finances cars at terrible rates for people with terrible credit.  

Co-sign for car loan

After bankruptcy, don’t co-sign for a car.

I asked her, didn’t I warn you not to try to finance a car until at least two years–three is better–after the bankruptcy?  She said she didn’t “finance” a car: she just “co-signed for a friend.”

(The friend, of course, only paid for a year; and then the car got repossessed. Obviously the friend had really bad credit; so bad that Cherry right out of bankruptcy was needed as a co-signer.)

Instead of having the best credit of her life, four years after bankruptcy, Cherry’s score is stuck in the mid 500’s.  And Regional, if they bother, has two more years where they can sue and garnish her.

Two lessons.  First, if you have any way at all to get to work, do not finance a car until two years after your bankruptcy is discharged. Second, don’t co-sign for anybody whose credit is worse than yours. Ever.   

Please Don’t Co-Sign for a Car and Mess Up Your New Start in Life

Improving your credit score is one of five ways that bankruptcy gives you a fresh start.  Three years after bankruptcy you can have as good a credit score as anyone you know.  Don’t mess that up.  Don’t co-sign for a car for a friend.

 

 

 

 

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06

Jun 2021

Does Reaffirming Your Car Loan Help Your Credit Score?

Posted by / in After Bankruptcy, Weekly Posts /

“Does Reaffirming My Car Loan Help My Credit Score?”

Ray and Theresa, who filed bankruptcy with me last fall, asked me that last week.

Lots of people ask that same question after they look at their after-bankruptcy credit report and see that their car payments don’t show.  Then, they are told by their car finance company, “Your lawyer should have had you reaffirm your car. That way your payments would show and your credit score would be better.” 

What’s the truth? 

Does Reaffirming Your Car Loan Help Your Credit Score? A Top Bankruptcy Judge Wanted to Know

Last fall, Judge Margaret M. Mann asked that same question. She had a a stream of people in her courtroom reaffirming car loans and she wanted to know why. They told her it was to help their credit scores. So she asked–actually ordered–Wells Fargo to send their credit score expert and explain.  What Judge Mann heard was this: Reaffirming the debt cannot be said to affirmatively help debtors rebuild their credit since the benefit is minimal at best.

In other words, reaffirming your car loan is hardly any help to your credit score–and that’s if you make the payments on time. (It you miss a payment–if the car needs a repair you can’t afford or gets totaled, or any of the things that can happen–then you drag your score way down with after-bankruptcy bad credit.)

The Judges in Alexandria Already Hated Reaffirming

Bankruptcy Judge will turn down your reaffirmation

Chief Judge Margaret M Mann says reaffirming you car loan is hardly any help for your credit score.

 As far as I can tell, Judge Mann is the only bankruptcy judge who has put in writing her opinion on reaffirming car loans. But she is the Chief Bankruptcy Judge in the Southern District of California, the busiest bankruptcy court in America. So you can bet bankruptcy judges around the country read what she said on this.

Even before that, the judges here in Alexandria VA made it clear they didn’t like reaffirmations. Now they like them even less. So–unless it’s Ford Motor Credit or your credit union–I will not agree to reaffirming your car loan.  And even I did, the Judges here mostly won’t approve it.

Your After Bankruptcy Credit Report is Very Important

For most people with damaged credit, filing bankruptcy is the fastest way to fix it. 

That’s one reason why its very important for everybody to check your credit score two or three months after bankruptcy. 

When you do, you’ll see your  after-bankruptcy car payments don’t show on your credit report.  (The payments don’t show because after bankruptcy because you don’t have to make the car payment. The car still has to pay, but you don’t.) But even if those payments showed on your credit, the car payments would help your credit score hardly at all.  

I have some tips on how to rebuild your credit here and here.  As long as you need a car–and need that car–you should keep up the car payment. But filing bankruptcy means you don’t have to keep the car once you can get a better deal when your credit is better.  

That’s why we don’t reaffirm car loans. Reaffirming your car loan doesn’t really help your credit if you. And if you get behind, it’s a disaster.  

PS

Stephen Dunne, a bankruptcy lawyer in Philadelphia, also has a helpful article on Judge Mann’s opinion.  

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19

Jul 2020

IRS Means Never Having to Say….

Posted by / in After Bankruptcy, Blog, Chapter 7, Chapter 7 Bankruptcy / No comments yet

IRS Means Never Having to Say….Anything

The IRS is not like most creditors. (Your probably knew that.)  The IRS in bankruptcy is not like most creditors in bankruptcy, either.

Knowing what debts have been cleared (discharged) by your bankruptcy is easy for most debts. For credit cards, loans (including payday loans, who want you to think they are somebody special), car loans, medicals. When those debts are properly listed (scheduled) in the bankruptcy, they are automatically discharged, unless they object.

So, for example, Capital One. Was your Capital One card listed on the schedule of debts? (Schedule F.) Yes. Did they object? No. Then they are discharged.

That’s NOT the rule for the IRS in bankruptcy.

IRS and Bankruptcy: Not Like Other Debts

IRS logo illustrating the IRS in bankruptcy

IRS in bankruptcy is not like other creditors.

First of all, not all income tax debts can be discharged. (Some people assume none can be, but you know better than that.) The main rule is you can discharge taxes that were due more than three years ago, and were properly filed. See 11 USC § 523(a)(1).

More than Three Years—Look at the Calendar

The due date for taxes is usually April 15, unless there was a holiday, or you asked for an extension, or because of some natural disaster (Covid-19 in 2020) there was an automatic extension.  523(a)(1).

That you can figure out for yourself, usually. (There are other rules on timing that do apply. This is NOT a complete analysis.)

Properly Filed—Lots of Gray Area

I say “properly filed” but that’s not the wording in the law. It’s my shorthand.

Your taxes do have to be filed, by you. (When people are chronically late, the IRS will often look at the W-2’s, estimate a tax and send you a bill. That does NOT count as filing a return for bankruptcy purposes).

You can’t file a fraudulent return. And you can’t willfully attempt[ed] in any manner to evade or defeat such tax.

That gray area is enough to give anyone who owes taxes some worry about what the IRS will do. You might feel certain you don’t pay because you were broke, but worry the IRS says you were evading.

I Got My Discharge. Am I OK?

The IRS does NOT have to say. The IRS does NOT have to tell the bankruptcy court, or you, if they say you filed a fraudulent return or willfully attempted to evade. They can decide whenever they want that they think you’re an evader.  You find out when you get collection notices again.

Should we ask the bankruptcy judge to decide?

Instead of waiting to see what they do, we can force the IRS to explain their position to the bankruptcy judge. Experts in that field say that’s a bad idea. A lot of times the IRS will let something borderline slide, but if you bring in the judge, they will fight you.  (At least that was the consensus at the NACBA convention panel in May 2021.)

Is There Anything I Should Do?

Actually there is. You should get your account transcript and look at the IRS notes. You can see if they have your debt coded as discharged in bankruptcy. Or are they showing something else.  You can get your transcripts here.

Get your tax account transcript.  The IRS has several different transcripts, For what we are talking about, the tax account transcript is the one you want.

What If There’s an IRS and Bankruptcy Problem?

If there’s a problem, you need to talk to a lawyer who knows more than I know about about tax law and the IRS and bankruptcy.  That’s not me.  I’ve told you all I know, here.

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