Who Should Not file Bankruptcy?

Posted by Robert Weed / in Weekly Posts /

Who Should Not file Bankruptcy?

Ray came to see me last week, wanting to file bankruptcy.  Right away.  He had his first payment, seven hundred-dollar bills, set down on my desk.

I told him, “no, not yet.  And not with me.”  Why did I tell him he should not file bankruptcy?

Ray’s credit was shot.  He had a car repossession, lots of medical bills, and a couple small credit cards.

So, why did I tell him no?  Ray had $900 in unpaid traffic tickets, and bankruptcy does NOT help with traffic tickets.

Ray was planning–right after the bankruptcy, he said–to move to South Carolina.

“The last thing you want to do,” I said, “is move to a new state driving on a suspended license.”  That would set you up for a real mess.  “Take the $700 you were bringing me (get $200 more from somewhere) , and go down to the courthouse and pay those tickets.”    Ray needed to fix his drivers license more than he needed to fix his credit.

I told Ray there’s another advantage to waiting.  “A lawyer in South Carolina is going to charge you maybe half of what I would.”  A South Carolina lawyer isn’t paying the office rent I’m paying here; and he’s not paying his people what I pay mine either.  Compared to Northern Virginia prices, he’ll be a bargain.

Ray’s story is one reason I want people to bring in complete paperwork before they come to talk to me.  My job is to give people the best advice I can–to get them back on the right road, going in the right direction.  Knowing about those traffic tickets was the key to me steering him right.

 

Can filing bankruptcy can make you smarter?

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

Can filing bankruptcy make you smarter?

A new book, Scarcity: Why Having Too Little Means So Much, explains why filing bankruptcy can make you smarter about money.

The book authors, Harvard Professor Sendhil Mullainatha and Princeton Professor Eldar Shafir, don’t talk about filing bankruptcy.  What they do talk about is how smart people get stupid, when things are tight.  When people are rushed, we make bad decisions about time; when people can’t pay their bills, we make bad decisions about money.

When the situation seems impossible, we choke up.

When people come to talk to me about bankruptcy, it’s usually because their debt situation is impossible.  And for a lot of them, it’s been impossible for a long time.  Being an an impossible financial situation–scarcity–often means people make one financial mistake after another.

For most people, filing bankruptcy is a smart decision.  And, according to the research in this book, it should make people smarter about money decisions from then on.

That’s what I see.  After bankruptcy, people often do really well.  Not just because “they learned their lesson”–although that’s a common perception.   More importantly, once the pressure is over, people’s good sense kicks back in.

Here’s a quick review of the authors’ findings.

Filing bankruptcy helps you sleep, too.

One other thing jumped out at me when I read about this research.  Being in a tight spot financially can knock 13 points off your IQ, they said–“the equivalent of one night’s sleep.”

Wow–that’s another reason filing bankruptcy makes people smarter.  After filing bankruptcy, people sleep better.  That’s NOT from Professor Mullainatha and Professor Shafir.  That’s from a study I did, with Survey Monkey, of people three years after bankruptcy.  Eighty-eight percent of the people said they sleep better after bankruptcy.  You can read about that here.   Getting enough sleep makes your smarter, too.

 

 

 

“Transferred, Sold” accounts on your after bankruptcy credit report

Posted by Robert Weed / in After Bankruptcy / 7 comments

“Transferred, Sold” accounts from Chase are a common error on after bankruptcy credit reports.

When a bank sends your credit card account to a debt collector before your bankruptcy is filed, your after bankruptcy credit report often does NOT show the bankruptcy discharge on that “transferred, sold” account.

Instead, they usually show “transferred, sold” account with “charge off.”   That means the credit score, future lender, or security clearance officer will look and think the debt is still out there somewhere.  (I explain what “charge off” means here.)

That’s most often true if you had that credit card account with Chase.  At least that’s what I see, when we look at my clients’ after bankruptcy credit report.

Over the last ten years, the accuracy of after bankruptcy credit reports is much better.  These “transferred, sold” accounts with “charge off” are the least improved problem.   Chase is the least improved bank.  (Equifax is the least improved credit bureau.)

Chase can try to argue that once an account is transferred or sold, it’s not Chase’s responsibility to update to show the bankruptcy.   I say that argument is BS.

The law is pretty clear.  When Chase gets a dispute from the credit bureau, §611(2)(2), they have to take action.  (Under the law, complaining straight to Chase is not the best way to go.)

They have to “conduct an investigation.” Investigation is a powerful word.  It means more than just looking in their own computer.  The Fourth Circuit–the big judges just below the Supreme Court–say that means a “searching inquiry.” 

If the investigation shows the information is “incomplete or inaccurate,” they have to report what they found out to all three credit bureaus.

They claim their “transfer, sold” account with “charge off” is accurate.  But there’s no way it’s “complete.”

The bankruptcy is the end of the line for that account.  Without saying bankruptcy, the information is not complete.  How hard is that?

But there’s more.  If the information “cannot be verified” they are required by the law to modify or delete the account.  So, if they say,  ‘we don’t know what happened in that bankruptcy,’ then they have to delete the account.

There’s only one way Chase can legally keep reporting the charge off, “transferred, sold” account without the bankruptcy.  That’s  if they know there was no bankruptcy.  If their investigation finds the  bankrutpcy, they’ve got to do a correction.  And if they don’t know how to look for bankruptcy records–look at the credit report for one thing!–they have to delete it.

All that’s in the law.

Recently, the Consumer Finance Protection Bureau has helped out a little more.

The Dodd-Frank financial reform law in 2010, set up the Consumer Finance Protection Bureau and gave them authority to pass regulations under the Fair Credit Reporting Act.  They did that with Regulation V.  Regulation V, Appendix E, I(b)(4) says that credit card companies should “update the information…as necessary to reflect the current status of the consumers account.”    So, what about the “transferred, sold” account with charge off, but no bankruptcy.  Maybe, it’s accurate.  It’s certainly not complete.  And it’s positively not the “current status.”

I’m lining up cases from my bankruptcy clients to go after Chase before the end of the year.  I’m sick of Chase verifying “charge off” with no bankruptcy when my clients do a credit report dispute.  We’ll try to update their attitude.

Hi, It’s October 2014.  I finally have Chase in court on this.  Not wanting to make it a big deal, I sued them in Fairfax General District Court.  Chase apparently does want to make it a big deal–they were afraid the Virginia judges in Fairfax would not protect their rights, so they removed the case to the United States District Court in Alexandria, VA.  The case number there is 14-01326-JCC-IDD.  In Fairfax I asked for $1000 under the law for my client; and $1000 for two and a half hours for me.  In the US District Court, my hours will be a whole lot more.  I’ll let you know where this comes down.

Once they sold the account, Chase says they don’t have to report it any more.

What Chase says is:  Chase sold the debt in question before Plaintiff filed his bankruptcy petition,
                      which terminated any obligation of Chase to engage in any further credit reporting relating to the
                      debts.
Chase is right that they are not required to report anything.  But since they DID keep reporting, they were required to be complete.  They dodge that argument completely.

December 2014.  We were able to resolve our issue with Chase, in that case.  That’s all I’m able to say about that.

I’m also happy to report that my friend Charles Juntika  is hammering Chase and also GE Capital on this issue in the Southern District of New York.  The cases are Haynes v Chase  and Belton v GE Capital.

May 2015.  The New York Times reports that Chase and Bank of America agreed in these cases in New York to fix this “problem.”  The Bankruptcy Judge in New York had made it clear he thought they were doing it on purpose–because some people would end up paying.  (GE Capital agreed to settle some months sooner.)

 

PS   Why are after bankruptcy credit reports a lot more accurate than they were ten years ago?

There are three big reasons why after bankruptcy credit reports have gotten better.

First, some of the credit cards that were the biggest offenders are gone.  Fleet credit cards seemed to never correctly report debts as discharged in bankruptcy.  They were taken over by Bank of America.  First USA and Bank One both had the same problem.  So did Washington Mutual.  They were taken over by  Chase.

Second, there are a few dozen lawyers around the country who have been suing credit bureaus on this for the last ten years.  Besides me, that includes Jason Krumbein, in Richmond; Kathy Cruz, in Arkansas; James Manchee, in Texas; Charles Juntikka in New York City.

Third, the White Terri class action.  Charles Juntikka, a bankruptcy lawyer from New York, brought a national class action against the credit bureaus because their after bankruptcy credit reporting system was not reasonable.  They agreed to shape up, some.  Juntikka recently brought in David Boies, one of the best known lawyers in the country, to hammer them harder.  The credit bureaus are terrified of David Boies.

(Under the original wording of the FCRA  in 1971, the credit bureaus were supposed to see that your credit report was complete and accurate.  But they only had to change stuff you disputed that was “inaccurate.”  “Incomplete” seemed to be ok.  So they could argue with a straight face that NOT showing the bankruptcy was “historically accurate.”   That was changed back in 1996!  Since 1996 they have had to fix information that was “inaccurate  or incomplete or cannot be verified.”  Public Law 104 – 208 FCRA provisions in Appropriations Bill“)

 

PPS  Just to my clients

If you have not sent us your after bankruptcy credit reports, now would be a good time.  This blog explains how to start.  https://robertweed.com/2013/08/20/the-credit-report-you-need-is-the-credit-file-disclosure/

Before bankruptcy: If I pay off credit cards, can I keep them?

Posted by Robert Weed / in Virginia Bankruptcy / No comments yet

People often ask me if they are allowed to keep a credit card out of the bankruptcy.

If you mean, can a leave one card off the list, the answer to that is no.  Leaving a card off the list is lying to the bankruptcy judge.   Lawyers don’t recommend lying to a judge–the job of your lawyer is to get the truth to work.

(Leaving on card off the list also doesn’t get you where you are trying to go.  When someone accidentally leaves one card off, the card gets cancelled in about week of the bankruptcy.  Why?  Even if you do not list a credit card company in the bankruptcy, your creditors keep a constant watch on your credit report.  That should be no surprise,…  the surprise is that the credit card company then reports the balance as an after bankruptcy charge off on your credit.  You really don’t want that.)

 

Paid off Cap One $2400 week before–cancelled her anyway.  Not listed in the bankruptcy–they see it on your credit report!

 

American Express hadn’t used to two months.  Reduced his credit limit from $2500 to $1000.

 

Kohls/Capital One

HSBC/Capital One  now, too Best Buy

 

Bought out a lot of HSBC store brand cards…

 

How soon after bankruptcy can I buy a house again?

Posted by Robert Weed / in After Bankruptcy / 101 comments

How soon after bankruptcy can I buy a house again?

Sooner than most people think.  And for some, it just got even better.

That’s because of a new policy from the Federal Housing Administration, announced by FHA Commissioner Carole Galante. Under that new policy, some people can get approved to get an FHA backed mortgage as soon as one year after the bankruptcy.  (Here’s that announcement, August 15, 2013, 13-26ml   Or here.)

Under the new FHA policy, how soon after bankruptcy can I buy a house again?

It has to be one year after the bankruptcy discharge…and if you lost your previous house, it has to be one year after the shortsale, foreclosure or deed-in-lieu.  Whichever is last.  (So if you file bankruptcy in July 2013, discharged November 2013, but the mortgage company doesn’t get around to foreclosing until February 2014, your waiting period starts in February 2014, not November 2013.)

There are some other rules.  Here’s the big one.  Your bankruptcy–and your loss of your previous house–has to be because of a six month loss of income of at least 20%.  Job loss, major pay reduction, or maybe you lost of a lot of time from work for medical reasons, or something like that.

The FHA calls that an “economic event.” Before the crisis lot of people got slammed into mortgages they just couldn’t afford–that won’t get you the one year rule. That’s not an “economic event.”

Kids got too big for the old house–that won’t get you the one year rule, either.

What about marriage break up?  The way I read it, eligibility depends on household income.  If both spouses were on the old mortgage, and were working, and they split up, then the “household” income dropped.  The way I read it, that’s an “economic event” that gets you the one year waiting period.

What else do you have to do?  You need to show you had good credit before the “economic event.”  Before you had that job loss or paycut, or break-up, you needed to be pretty much current on everything.  If you were dragging around bad credit even before you took that paycut, you can’t get in that one year policy.

Finally, after bankruptcy, you need at least twelve months of paying everything on time.  That’s twelve months of good credit, or, the way I read it, having twelve months of no credit at all.  You just can’t have bad credit. (This makes your after bankruptcy credit report even more important.  I’m one of only a handful of bankruptcy lawyers who works with you to check your after bankruptcy credit report.  If somebody hits your credit after the bankruptcy, and disputes don’t fix it, I sue.  That problem is a lot less common then it was ten years ago, when I started suing.  But it still happens.)

And you also have to be counselled by a housing counselor.  Springboard seems to have a useful site, here.

What if you don’t have that “economic event”–the loss of 20% or more of your income.  You still have the same question.  How soon after bankruptcy can I buy a house.  That rule is two years after the bankruptcy discharge, two years after s shortsale or deed in lieu, three years after a foreclosure.  That’s found in the FannieMae Selling Guide, look at page 486.  Those rules are if there are “extenuating circumstances.”  “Extenuating circumstances” don’t have to be as specific as the 20% loss of income that counts as an “economic event.”  But there has to be some actual hardship–not just a strategic default.  If you just decided to not pay, the rule is seven years.

On July 29, 2014, Fannie Mae cancelled the three year after foreclosure rule for people who file bankruptcy.  Their announcement is here.  

You have to get two years past the bankruptcy, but you do NOT have to wait until three years after they actually foreclose.   But while you don’t have to wait three years, people trying to buy a house tell me they still get turned down if the house is still sitting there without a foreclosure.  That’s one reason I tell people, don’t move out.  

UPDATE:  The one year rule isn’t working very well.

An October 22, 2014 article in the New York Times reports only 337 people nationally were approved in the first year of the program.  Bank of America, Wells Fargo and Chase all said they would NOT help people under the one-year program.

 

UPDATE  TWO:  January 2015

A mortgage company in Annandale told me that they make these loans.  They are called FHA Back to Work Loans.

They want very strict paperwork, both on the hardship and on the new current income. But if you meet the requirements, you can get approved.

The contact is Safa Javid, at Movement Mortgage. His contact info is here.  

Can I leave one credit card out of bankruptcy?

Posted by Robert Weed / in Personal Bankruptcy /

Can I leave one credit card out of bankruptcy?

People ask me that probably twice a week.  The short answer, is, No, you can’t.  You can’t leave one credit card out of bankruptcy.

Here’s the long answer.

Travis, not his real name, did NOT ask his lawyer.  He just decided, on his own, to leave one credit card out of bankruptcy.

Travis bought furniture on a store credit card, two weeks before he came to see his lawyer.  His store credit card was so new, it didn’t show up yet on his credit report.  (I strongly encourage everyone I talk to, to bring  their credit report from experian.com/reportaccess.  I explain why that’s my favorite, here.)

He might have guessed that might not look good.  So he decided to leave one credit card out of bankruptcy–that furniture store credit card.

When he filed his bankruptcy case, a few weeks later, that furniture store card wasn’t on the papers.  Probably Travis figured he’d get a monthly bill and pay it like nothing happened.  That didn’t work out.

What happened instead.

The furniture card found out that Travis filed bankruptcy within forty-eight hours.  They hit the ceiling.  They ran down to the bankruptcy court complaining about Travis’ “bankruptcy fraud.”  They pointed out that Travis lied on his credit application with them–because he promised to pay them back over four years, knowing that he was filing bankruptcy in a couple weeks.  And he lied to the bankruptcy court, by leaving their card off the list, when he swore he listed everybody.

(Just to make it clear, when you sign your bankruptcy papers you are signing under penalty of perjury–the truth, the whole truth, you know how that goes.)

Where did this end up?  Travis got a judgment against him for the entire amount of the furniture.  It was all due NOW.  On top of that, the furniture company added their attorney’s fees to what he owed for the furniture.

It could be worse.  Since his lie to the bankruptcy court was so blatant, a really mean bankruptcy judge could have turned down his whole bankruptcy.  He could even–now this almost never happens–be looking at five years in prison.   (As a practical matter, that doesn’t happen when you leave out a creditor or two.  It can happen if you “forget” to tell the court about valuable property you own.  Here’s the story of how that happened to a guy named Jon Mays.)

After they got a judgment, the furniture store credit card did work out a payment agreement–but if they wanted to, they could just hit him with a garnishment.  Getting a garnishment right after your bankruptcy is NOT a good way to build back up your good credit.

So, can you leave one credit card out of bankruptcy?  No, you can’t.  You are required to list everybody you owe money to.

And, if you you try, you’ll find out all the big credit card companies check your credit at least once a month, more like once a week, or even daily.

Also, lying to your lawyer is not a good policy either.  It will rarely work out the way you plan.