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16

May 2011

After bankruptcy: My house payments don’t show on my credit report.

Posted by / in Virginia Bankruptcy / 534 comments

One reason to file bankruptcy is to get back to good credit.  Once your credit has gone bad, bankruptcy, for most people, is the fastest way to fix it. I encourage all my clients to rebuild your credit after bankruptcy.

So you may be disappointed, and even angry, about how the credit bureaus handle your mortgage payments.  Making your after-bankruptcy mortgage payments on time doesn’t help your credit score one bit.  Those payments don’t show at all.

Instead your mortgage will just show “included in bankruptcy.”

“Hold on” people say, “I didn’t include my mortgage.”

Actually you did.  When you file bankruptcy, you “include” everything.  That’s the law.  You pick and chose what debts you want to keep paying–keep paying the house if you want to live there; keep paying the car if you need it to get to work.  But you don’t pick and chose what debts are covered.

(The bankruptcy covers–discharges–your credit cards, medical bills, debt collectors, bank loans, car payments, mortgages.  It doesn’t discharge student loans, most taxes, child support or alimony.)

Making your house payment on time after bankruptcy, gives you a place to live. But it does not help your credit score.

Even if you are keeping the house, the discharge is an important benefit to you.  If real estate values don’t recover–or drop again–and you can’t sell the house when you are ready to move, you are still protected.  You can move out and not owe them anything.  (Remember though to pay your home owners association!)  Also, after bankruptcy late payments don’t count against your after bankruptcy credit.

If you complain to the mortgage company about your credit report, they will tell you that “you should have reaffirmed your mortgage.”  Reaffirming takes the house out of the bankruptcy.

Is reaffirming a benefit to you?  Maybe you get back to good credit a month or two sooner than you would just be getting and paying new credit cards.  The disadvantage?  If you can’t pay or can’t sell the house, you get garnished for up to eight years.

That disadvantage is lots bigger than the benefit.

If the credit bureaus worked for you and me, rather than the creditors, we’d set it up something like this.  The credit bureaus would report your house payments as long as you are current, but they come off if you get behind.  Sorry, but we don’t have that choice.

After bankruptcy mortgage payments–current or late–don’t show on your credit.  That’s just the way it is.

(The same rule applies on car payments.)

 

PS  What the Bankruptcy Judge Here Thinks

In early 2020, I was in court and saw a lawyer asking the judge to approve reaffirmation on a mortgage.  The judge, who is usually very nice, chewed out the lawyer for even suggesting it.  “I will never approve a mortgage reaffirmation,” she said.  “Don’t ask.”

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21

Feb 2011

Bankruptcy exemptions in Virginia get better July 1.

Posted by / in Virginia Bankruptcy / 6 comments

Bankruptcy exemptions in Virginia got a little better effective July 1, 2011.

HB 1422, sponsored by Del Dave Albo (R-Springfield) increased the exemption for motor vehicles from $2,000 to $6,000.  It also exempts one family firearm valued up to $3,000.

Bankruptcy exemptions are important because the bankruptcy trustee is supposed to take and sell your non-exempt assets and use the money to pay creditors.   The last major revision of this law had been in 1992, and 20 years of inflation had taken a toll on what people are allowed to keep.

The purpose of exemptions is to allow people (who maybe losing their home to foreclosure), to keep enough to be able to start over.  A $6,000 motor vehicle exemption will about cover a seven year old Chevy Malibu–a reasonable car for someone to get to work or the grocery store and feel safe with the kids.

Virginia has a “homestead exemption” of $5,000.  That  goes back in Virginia law to 1919 and was originally intended to protect real estate equity.  Recently most people filing bankruptcy with paid for cars had to use the “homestead” to protect their cars.

Many bankruptcy lawyers this year worked very hard to get the General Assembly to update all the Virginia exemptions to reflect changes in the last twenty years.  That didn’t work out.  We got a lot less than we asked for.

The members of the Virginia House of Delegates who did the most to help people on this issue were Del. Mark Cole (R-Stafford, Spottsylvania) and Del. Robin Abbott (D-Newport News).

Fairfax Senator Chap Petersen

Fairfax Senator Chap Petersen helped improve Virginia bankruptcy exemptions. Legislation passed in 2011 allows families filing bankruptcy to protect a car such as a seven year old Chevy Malibu.

State Senator Chap Peterson (D-Fairfax) was our key supporter in the Virginia Senate.

Several Bankruptcy Lawyers worked very hard to persuade our elected officials to improve the Virginia exemptions.  Mitchell Goldstein, of Richmond, drafted our proposed legislation.   Darden Hutson, also of Richmond, coordinated the state-wide effort.  Daniel Press, of McLean, worked tirelessly and recruited Senator Peterson to help.  Bob Barlow, of Fredericksburg, talked to the legislators in that area.  Bob’s success recruiting Del. Mark Cole was key.

Other bankruptcy lawyers who worked hard include Jeanne Hovendon, Ellen Ray, and Jason Greenwood.

I should also mentioned Klinette Kindred, of my law firm.  (In 2011 she became a bankruptcy trustee and later moved to a law firm that doe primarily trustee work.)  She lives in Springfield VA, in the area represented by Del. Albo.  She made an appointment and asked him for support in December 2008.  That request from a local voter may have helped tip him over to us two years later.  Del Albo is the chairman of the committee that has jurisdiction over exemption law.

For my later blog on exemptions generally, go here.

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17

Feb 2011

Bankruptcy is better on your job resume than bad debt

Posted by / in Virginia Bankruptcy / 3 comments

A bankruptcy client sent me a wonderful email yesterday.  “I can finally see light to get on with my life.”  Why?  “I got the job!”

Bad credit was no longer blocking him from getting the job he wanted.

My friend had been out of work for more than two years; and while he was out of work his credit had been completely shot.  And bad credit had been holding him back.  Filing bankruptcy got him the job.

He needed everyone of his bad debts to be reported as “in bankruptcy” on his credit report.   As soon as they did, he got clearance for a Federal government job.  A job he had been turned down for, just six weeks before.

I’m a lawyer in Northern Virginia.  I see a dozen people every month who have clearance issues on their jobs.  And it’s amazing how many people have it in their heads that bankruptcy is the worst thing you can have on your record.

That’s totally wrong.  The worst thing you can have when an employer checks your credit is–bad credit.  Unpaid bills.  Charge offs, repossessions.  All those things are career killers.

Bankruptcy is much better than those things.  Bad credit means you are in trouble now.  Who would anyone want as an employee?  Someone in trouble now?  Or someone who cleaned it up?

Obviously never being in financial trouble is best.  But once you are in trouble, wise employers and security clearance officers want to see that you took care of it.

I know some people reading this still don’t believe me.  So look at this letter.  This is the letter that TSA sends when they turn someone down for a job because of bad credit.  You get turned down if you have more than $7500 in charge offs, repossessions, collections, debts 120 days or more late.

With bad credit, you can't get a job at TSA. With bankruptcy, you can.

But TSA says it’s ok if those debts have been discharged “in bankruptcy.”

Bankruptcy is not the solution to all employment problems.  It does not erase the bad credit you had before–that bad history is still there.  (That’s one reason, if you know you can’t pay, why it’s smart to see a lawyer right away.  Going straight from current to bankrupt looks a lot better than dragging around late payments for a year.)

Some companies won’t hire you even after you put the problems behind you.  But most don’t care.

Between bad credit right now, and bankruptcy in the past, bankruptcy is nearly always much better.

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