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

Posted by Robert Weed / 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.  

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.

 

 

 

 

Does Reaffirming Your Car Loan Help Your Credit Score?

Posted by Robert Weed / 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

 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.  

IRS Means Never Having to Say….

Posted by Robert Weed / 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

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?

So at the end of your bankruptcy, there might still be a problem.  The IRS might claim a tax is still there that we think should be discharged.  Going back to fight that in front of the bankruptcy judge can be way harder and more expensive than the bankruptcy itself.  

After bankruptcy….the car still has to pay!

Posted by Robert Weed / in After Bankruptcy, Blog, Chapter 7 Bankruptcy, Weekly Posts / No comments yet

…But the Car Still Has to Pay.

When you file Chapter 7 bankruptcy, that means you don’t have to make the car payments.

But that does not mean you get a free car. You don’t have to make the car payments, but the car still has to pay.

That’s because the car finance company is attached to the car title. Lawyers call that a lien.  If the debt that’s attached to the car isn’t paid, the lien holder will repossess the car.

Don’t Forget to Make the Car Payment

It’s easy after bankruptcy to forget to make the car payment.  If it slips your mind, the car finance company won’t send you a reminder. Why? Because you don’t have to pay. They also won’t send the car a reminder letter. They know the car doesn’t open its mail.

And if you get a week behind, they won’t call and demand payment. Because you don’t have to pay. And they won’t call the car, because the car doesn’t have a phone. Only one thing happens if you forget to pay. You wake up in the morning and the car is gone.

Does Paying the Car Help Your Credit Score?

Suppose you forget to pay and the car gets repossessed. The repossession won’t show up on your credit report.  That’s because the bankruptcy discharges the debt from you. But that also means your car payments won’t show up on your credit report if you do pay. You don’t have to pay.

Only one thing happens if you pay. You keep the car.

Only one things happens if you don’t pay. When you wake up in the morning, the car is gone.

You need to make the car payments if you want to keep the car. 

After Bankruptcy, OneMain Offers Car Reaffirmation Negotiation

Posted by Robert Weed / in After Bankruptcy, Blog /

In the last few months, OneMain has been contacting me about reaffirmation negotiation on car loans.

That took me by surprise.

With the exception of Ford Credit, I’ve been strongly opposed to reaffirming cars.  Usually you can keep the car without reaffirming. and then give it back when your credit improves. I explain more about that, here. 

OneMain figured out that they don’t want you to give them the car back when your credit improves, so they are offering you a better deal now. Up ’til now, I had never seen a car finance company really offer car reaffirmation negotiation. They wanted people to reaffirm the entire balance at the current interest rate on a take it or leave it basis. 

But OneMain has come through with real balance and interest reductions. Taking a terrible loan and making it pretty good. If that’s on a car that you have been taking good care of–and been lucky to avoid problems with–then that makes sense.

Basically, here’s how this works. Get an accurate value on your car. Kelly Blue Book is one place. (Carmax offers on line, here.) We need to email OneMain, at this email [email protected], with the Blue Book value and say we’re willing to reaffirm based on that value at 6.0%.  

OneMain then will send back a reaffirmation on that basis. At least a lot of the time. (Sometimes I’ve seen them add a little.)

PS  I need to apologize to one of my clients last year, Kandy. Kandy believed OneMain’s offer when I thought it was just more smoke and mirrors. She was right and I was wrong. OneMain does seem to genuinely be willing to work out a new deal for you to keep the car.  This is my apology, Kandy.

 

Right After Bankruptcy, Carla Signed on a Car Loan

Posted by Robert Weed / in After Bankruptcy, Weekly Posts /

Right After Bankruptcy, Carla Signed on a Car Loan and She’s Probably Gonna Lose Her House

I tell people please please please, do not get a car loan until at least two years after your Chapter 7 bankruptcy.

 

Two years after bankruptcy, I’m seeing people get car loans in the 6%-8% range. Three years in the 2%-4% range.

 

So please please please do NOT tie yourself to a 24% car loan right after filing bankruptcy. Here’s a true story that tell you why not.

 

Carla filed bankruptcy with me in 2014. Six months later, she co-signed on a car loan for her sister. The loan was financed by Credit Acceptance, at 24% interest. 

 

After a year, the sister stopped paying. Carla paid for a while, but when she stopped, or course that car got repossessed January 2017.

 

Fast forward to 2019. Credit Acceptance gets a judgment for $8600, attaches that Judgment to Carla’s house, and puts a garnishment on her pay check.

 

Carla is stuck. She can’t afford the house payment while being garnished. It’s too soon to file Chapter 7 bankruptcy, again. And if she could, the equity she’s built up since 2014 means the bankruptcy court would take and sell her house. And while she’s eligible for a Chapter 13 bankruptcy payment plan, she can’t afford that payment, either. (Under Virginia law, with terrible equity protection for single people, her Chapter 13 would have to pay all her debts in full.)

 

Two mistakes. First co-signing for someone whose credit was worse that hers!! Second, letting the dealer arrange financing at a terrible rate.

 

If you have to finance a car shortly after bankruptcy, shop for the car loan, before you shop for the car.

While it’s especially important right after bankruptcy, that’s always good advice. Shop for the car loan, before you shop for the car. (Unless the factory is having trouble selling their cars, dealer financing will always be more expensive than the best loan you can get for yourself.)

 

Sometimes, some people have no choice. They have to finance a car just a few months after bankruptcy. If you really have to, here are some of the places you can look.

 

722 Redemption Funding. These people are in the business of car loans immediately after bankruptcy is filed. they will put you in a bad loan; but probably a much better loan than the horrible loan a car dealer would recommend.

Bankruptcydrive.com is a new company that contacted me recently. I don’t know much about them.

Tower Federal Credit Union. Tower is the largest credit union in Maryland, and they make car loans to people in Virginia. I’ve seen them make loans to people right after bankruptcy that were better than I expected.

 

I’m not recommending any of these three. What I recommend is getting at least two years after your bankruptcy discharge before you finance a car. But if for some reason you can’t wait, shop for the loan before you shop for the car. And shop at least three places: try to get the best bad deal you can get.  

 

 

 

 

 

 

 

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

Posted by Robert Weed / 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.

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.

 

 

 

After Bankruptcy, get a credit card

Posted by Robert Weed / in After Bankruptcy, Weekly Posts /

After bankruptcy, get a credit card. Get a couple.

Getting back to good credit is one of the five ways bankruptcy gives you a new start. The bankruptcy itself helps quite a bit, because the old debts stop chasing you. But to really improve your credit score you have to get and use two or three after bankruptcy credit cards every month. Using credit responsibly leads to a higher credit score, than just having no debt.

I reccomend getting about three after bankruptcy credit cards, using them each month to charge something you need, like gasoline or groceries, and paying them in full.

About the time of your bankruptcy discharge, you will get some after bankruptcy credit card offers in the mail. But you should compare those with offers you might find on the internet. I think bankrate.com is a good place to shop for credit cards for people with bad credit. (Right after bankruptcy you are a person with bad credit; if you follow these steps, you soon won’t be.)

When deciding what card to apply for, keep in mind that you are planning to pay the card in full every month. That means you really do NOT care what the interest rate is. You won’t be paying interest because you’ll be paying it off each month. What you want to low or no application fee; and low or no annual fee.

If you can only get approved for one card as soon as the bankruptcy is discharged, that’s ok. Using that first after bankruptcy credit card for a few months, charging and paying off, charging and paying off, will raise your score. So better offers will come your way.   

Here’s a sample of a credit card offer one of my clients got in the mail, about six weeks after her Chapter 7 bankruptcy was discharged.                             

 

 

After Bankruptcy, check your credit score

Posted by Robert Weed / in After Bankruptcy, Weekly Posts /

After Bankruptcy, check your credit score

Most people have a credit score of about 620 a couple months after bankruptcy.  That’s from a study by the Philadelphia Federal Reserve Bank, a few years ago. (I saved the complete study here.)  And here’s the full size Chart that shows how scores recover.

 

What’s your after bankruptcy credit score?  One free place to check is Lendingtree. Here.    

Now I can’t guarantee that your score will be 620.  But, if I handled your bankruptcy case and your score is NOT what it should be, follow these instructions and send me your credit report.  We’ll see if there’s something hitting your credit that shouldn’t be there.  

Navy Fed does the Right Thing; Wells Fargo Makes More Excuses

Posted by Robert Weed / in After Bankruptcy, Weekly Posts /

After Bankruptcy Mistakes: Navy Fed does the Right Thing; Wells Fargo Makes More Excuses.

Everybody makes mistakes. Banks do, too. When you file bankruptcy, the banks you owe money to don’t always do what they are supposed to do. This is a true story of Navy Fed admitting their mistake and fixing it. Wells Fargo making excuses and more excuses

After Bankruptcy, Navy Federal Hit Rob’s Credit So He couldn’t Buy a House.

Rob, not his real name, and his wife Daisy, filed Chapter 13 bankruptcy with me in summer of 2011. One of the debts that was partially paid and mostly discharged—wiped clean—was a third mortgage to Navy Federal for $39,157. The chapter 13 was paid off in July 2014. 

By the fall of 2016, Rob and Daisy are back to good credit. They sold their house to buy a new one. In fact they signed a contract to have a house built.

That’s when they find out Navy Fed is still hitting Rob’s credit. Rob’s Experian credit report shows that years three years past due on now $39,000 to Navy Fed. Rob called and complained to the credit reporting department. He was told the credit report was right. Rob called Jeremy in the Navy Fed bankrutpcy department. Jeremy said he agreed with Rob (!) but he couldn’t change credit reporting. Rob went to the branch. That did nothing.

Finally, someone at Navy Fed whispered to Rob that he should talk to his bankruptcy lawyer.

We Ask Navy Fed to Tell It to the Judge

January 6, 2017 I filed papers with the bankruptcy court. We asked the Navy Fed to come to court on February 2, and explain to the judge why they were still trying to collect a discharged debt. 

It didn’t get that far. I heard first from Jeremy, in the bankruptcy department, and then from Emily, their lawyer. Most importantly, they sent a correction over the Experian, and the other credit bureaus, too.

(Rob wondered why this problem showed up only with Experian. Each credit bureau’s computer programs are slightly different, so a small mistake might show up with one, but not the others. But, I don’t think that’s the problem here. Under the Terri White class action settlement, the credit bureaus are supposed to show your debts are discharged in bankruptcy—even if the creditor keeps reporting them as late. My best guess is that Navy made the mistake with all three credit bureaus, but only Experian let is slip past.)

February 1, 2017, we were able to confirm with each of the three credit bureaus that the Navy Fed loan was now showing “discharged in bankruptcy.” That fixed his Experian credit score, his loan was approved, and Rob and Daisey will be moving into their new house in a few weeks.

As a tangible apology, Navy Fed also agreed to make a small payment—we agreed to keep the amount secret—for Rob and Daisy’s sleepless nights and for my legal work. Although they had given Rob the run around, Navy Fed was all over it when they heard from me. So we did not squeeze them to make a big settlement.

Wells Fargo Won’t Let Veronique Renew the Tags on Her Car

Veronique, not her real name, filed Chapter 13 with me in April 2016. We needed to prevent the repossession sale of her car. (Veronique traveled to two or three different job locations every day. She had to have a car.)

Wells Fargo stopped the repo sale, and gave Veronique her car back, exactly like they were supposed to. But, when she went to renew her tags in June 2016, Veronique was in for a shock. Wells Fargo had taken her name of her title, so she couldn’t renew her tags.

This was no ordinary screw up

I thought this screw up could be easily fixed. After all, Wells Fargo has four million car finance customers. They know how to fix a car title. Wrong.

She updated me on June 20. Still not fixed. July my office started calling. No luck. August, Wells Fargo insisted that the title was right. Not true. September they asked for a power of attorney for us. Then they told us it had expired. How could this be? they just needed to correct her car title.

Finally, September 30 we drew up paper to take this problem in front of the bankruptcy judge. Called them again on October 3. “Can’t you get this fixed; we’re suing you because you can’t fix this lady’s car title.” Transferred all over the place. Four hours! on the phone. No results.

Wells Fargo Tell the Judge They Fixed it: Two months Before They Really Do

October 17 2016, Wells Fargo files a copy of what they claim is Veronique’s title with the bankruptcy court. I tell Veronique to take it to the DMV and see if that works. It doesn’t. “Wells Fargo invalidated this title back in April,” we’re told.

On November 8 Wells Fargo’s lawyer went in front of the Judge and told the court that Wells Fargo had done everything possible to fix Veronique’s title. The Judge believed them. (I didn’t.) 

Finally, January 18 2017, Veronique’s title as fixed. She was able to renew her tags.

It took Wells Fargo, the world’s second largest bank, with four million car loan customers, nine months to correct their mistake on Veronique’s car title. 

Wells Fargo Promises a $10,000 Settlement Payment—So Far, No Check

Wells Fargo also offered in January, to pay Veronique $10,000 for her trouble—hours on the phone, multiple pointless trips to the DMV, and driving eight months on expired tags!

We agreed to accept the $10,000. They said they’d send it as soon as we submitted her W-9. That’s been three weeks ago. Still no check.