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Mar 2011

After bankruptcy, back to good credit

Posted by / in After Bankruptcy / 23 comments

Just now got a call from Lester (not his real name) who filed Chapter 7 bankruptcy with me in July 2008. It was discharged in November 2008.

After bankruptcy and back to good credit

Lester got a car loan at 7% less than three years after his bankruptcy.

He was telling me this weekend, he got approved for a car loan at 7.0% (Around Christmas, he bought a big screen TV at HHGregg, with 12 months at no interest.) And the car salesman told him his credit score was 680. Can’t argue with that.

He had worked real hard getting some credit right after the bankruptcy and rebuilding very carefully. (He was also continuing to make his house payment on time, although, as I explain to people, it still shows bankruptcy for the house on his credit report.)

Thsi is pretty much what I tell everyone who asks. (Actually I tell people its usually three years after discharge before you can get a car at 7%. He did it in two years and three months.) But a lot of people still wonder.

As a Virginia bankruptcy lawyer, I talk to a lot of people who believe it will be seven years before they can get back to good credit.  So I was glad when Lester gave me permission to post his experience, for you to read.  And to show to people who say you will go seven years with bad credit.

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Feb 2011

After bankruptcy: Debt collector NCC tries a scam

Posted by / in After Bankruptcy / 19 comments

Cindy (not her real name) filed bankruptcy with me back in 2001.   She called last week, upset.  A debt collector, Nationwide Credit Corporation, of Alexandria, VA, called last week wanting $541.00.

This is the headquarters of Nationwide Credit Corporation, Alexandria VA. A debt collector there called Cindy and told her bankruptcy didn't cover their debt.

Cindy, now retired, didn’t have that much money.  She wondered if I could work something out.

“Work something out!?  We’re suing them!” I said.

This debt collector told her that her bankruptcy did not cover “interest,” and so she still had to pay.  This collector, who gave the name Bill Watson, had Cindy totally confused.  If she had $541, she would have sent it.

Bill violated two separate laws.

The bankruptcy discharge is a court order.  It says that creditors cannot do “any act” to collect a debt that was discharged in the bankruptcy.   Cindy properly listed a debt to Washington Gas.  It was discharged.  Nobody can try to collect it.  Not Washington Gas and not their debt collector either.  The call to Cindy was an act to collect the debt.  It was a violation of the bankruptcy discharge.

Secondly, the call was a violation of the Fair Debt Collection Practices Act  (known as the FDCPA).   The FDCPA says that a debt collector cannot use any unfair means to collect a debt.  One unfair means is making a false representation about the legal status of a debt.   Bill Watson made a false representation about the legal status of the debt.   It was discharged in the bankruptcy;  he said it wasn’t.

Even for violating two different laws, I may not be able to spank NCC as much as they deserve.

For violations of the discharge, the bankruptcy judge can order them to stop.  He can make them pay the consumer’s lawyer (me, thank you) for bringing it up.  But he can’t punish the debt collector.   Not unless they keep doing it.

For violation of the FDCPA, there’s a $1000 penalty.  That was put in the law at $1000 in 1978.  It hasn’t been adjusted for inflation since then.

Bill Watson had his lie all ready.  He said bankruptcy doesn’t cover “interest.”  He could have been telling the same lie to hundreds of people all month.  Paying a $1000 fine and some legal fees.  That doesn’t begin to cover the money he might have collected from people he scammed.

But it’s the best I can do.  I’m sure glad Cindy called me–we’re suing those guys this week.

Bankruptcy law is my business.  Suing debt collectors is my hobby.

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Feb 2011

To get a HAMP modification, does bankruptcy help?

Posted by / in After Bankruptcy / 19 comments

To get a HAMP loan modification, some people need to file bankruptcy first.

I’m a Virginia bankruptcy lawyer.

Usually, I urge people to try to get a HAMP modification before we file their bankruptcy.  We hold the bankruptcy in reserve to stop a foreclosure if we need to.   But sometimes, there’s no way a HAMP modification can be approved without filing bankruptcy first.

Why?  One of the requirements for a modification is that your “back-end debt-to-income ratio” be less than 55%.

What does that mean?  Suppose you make $4000 per month before taxes.  If your mortgage payment now is $1500, you could ask for a modification to come down to $1240.   That $1240 is 31% of your before tax income.  HAMP requires lenders to consider–not always agree to but consider–dropping your payment down to 31% of your gross income.

So you could save $260 a month if your modification is approved.   But, you will be turned down if your other debt is too high.

Suppose there’s a $500 per month car payment–and $600 total minimum on credit card payments.  Your total debt payments are 58.5% of your gross income.  Too high to get the modification.  Because there is “No Affordable Solution.”

Now, you file a Chapter 7 bankruptcy and the $600 credit card payments are gone.  Even with bankruptcy, you still are paying the car loan.

Now, after bankruptcy, your back-end debt-to-income ratio is only 43.5%  Now your modification can be approved.

Here’s a short cut.  If your credit card minimums plus car payments plus student loan payments total more than 25% of your before tax income, you can’t get a HAMP without filing bankruptcy.  You can’t get because there is no affordable solution, because the total debt payment would be more than 55% of your gross income.

If filing bankruptcy gets the credit cards (none, now, we hope) plus car payments plus student loan payments below 25% of that before tax income, then you’ve fixed the “no affordable solution” problem.  If you meet all the other requirements, then you can get your loan modification approved.

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