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. 

Virginia Chapter 7 Bankruptcy

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

The Bankruptcy Law Office of Robert Weed led all attorneys in Virginia Chapter 7 bankruptcy case filings in 2013.

That fact was announced just recently by 722 Redemption Funding, a company that finances cars for people in or just out of chapter 7 bankruptcy.   You can see their full report here.

For most people who are in financial trouble in Northern Virginia Chapter 7 bankruptcy brings immediate relief from financial pressure, and the chance to build back to good credit in three years.

Compared to Chapter 13, Chapter 7 for most people offers more immediate relief and quicker return to good credit.  (Happiness, too–a survey we sponsored with SurveyMonkey showed 93% of our clients said life was better after bankruptcy.  You can read that here.)

The simple reason Chapter 7 is better than chapter 13, is Chapter 7 is over.  Chapter 13 runs on, usually for five years.

The 2005 bankruptcy reform law tried to push high income people into Chapter 13.  Northern Virginia is a high income–and high cost-of–living area.   Since Chapter 13 is much worse for your credit than Chapter 7–and much more likely to fail–I push back.

Usually if high income people are talking to a bankruptcy lawyer, there’s a reason why there’s a financial problem.  I try to find that reason–and use it to qualify people for Chapter 7 (if Chapter 7 is better for them).

 Virginia Chapter 7 Bankruptcy Automatic Income Eligibility

The median income figures for Virginia were just updated as of April 1, 2014.  Families that are below the median income automatically have income eligibility to file Virginia Chapter 7 bankruptcy.

Families with more income, do not have automatic eligibility.  They need to prove why they should be eligible.    That means carefully analyzing their budget under the bankruptcy means test.  I explain more about that here.

Here are the cutoff numbers, by family size.

                                                        One                              Two                             Three                            Four

VIRGINIA	$52,576	$66,470	$76,884	$92,277

 

Families with income over these numbers can still have income eligibility for Chapter 7.   But they have to work to prove it.  An experienced Virginia Chapter 7 bankruptcy lawyer can help.

(I should say here that for some people even with income eligibility for Chapter 7, Chapter 13 is better.  Chapter 13, for example, is better that Chapter 7 in dealing with student loans, or with unfiled taxes, and sometimes with divorce problems.  For most people who don’t have those problems, Chapter 7 is better.)

 

Bankruptcy and your co-signer’s credit report

Posted by Robert Weed / in Chapter 7 Bankruptcy / 2 comments

 What happens to your co-signers when you file a Chapter 7 bankruptcy?  Can you avoid damaging your co-signer’s credit report?

It used to be that if you filed bankruptcy, your co-signer’s credit report would immediately show the account as “included in bankruptcy.” That happened even if you or the co-signer kept paying the account on time.  It was automatic.

Why?

The standard credit reporting system, then known as Metro, provided for credit reporting by accounts.  If an account was in bankruptcy (because one of the people on that account filed bankruptcy), the bankruptcy showed up on the report of everyone who was on that loan.

That problem is NOW  rare.

In the late 1990’s, the credit bureaus phased in a new system called Metro 2.  Metro 2 was designed to allow for “complete identification of each consumer (including co-debtor, co-signer, etc.)”  So the account could–and should–be reported are bankruptcy on the person who filed bankruptcy and current (if it is current) on the person who did NOT file bankruptcy.

The credit bureaus did this for two reasons.  First, because it was more accurate; second they were afraid of getting sued.  (And they did get sued, in a case called Clark v Experian.    You can read about that here.)

Still, if you file a bankruptcy, and you have a co-signer, and you, or the co-signer, is still paying the debt, check your co-signer’s credit report.  Better check it twice, actually.  Once about the time of your bankruptcy hearing.  And again, three months after your bankruptcy discharge.  (I explain here where to go to get the right credit reports to check.)  WARN your cosigners!

I still see this problem, maybe once a year.  (The reason I’m writing this blog, actually, is this problem popped up today, December 27, the first time I’ve seen it in 2013.)

One reason may be that some credit card companies may still be using Metro, instead of Metro 2.  In 2006, the Federal Reserve reported to Congress that half the credit reporting was still being done on the old Metro system.

If half the companies had not updated seven years after the new system was put in place, I suspect many still haven’t, another seven years later.

 

PS  What if no one pays the debt?  Your co-signer’s credit report will definitely get hit!

If nobody pays the co-signed debt, then there will and should get a bad notation on the co-signer’s credit report.  The debt will show up as bankrutpcy on you, and as late–and probably charge off–on your co-signer.  “Charge off” is a “major derogatory” on someone’s credit.  Maybe as bad, or worse, than a bankruptcy.

 One More Reason I like the Credit Report at Experian.com/reportaccess.

I like to talk about this during my consultation with people who are thinking of filing bankruptcy.  And the experian.com/reportaccess credit report is usually accurate on telling us when you have cosigners.  (Sometimes people have forgotten.)  Other credit reports aren’t as good, including other Experians.