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13

Jul 2019

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

Posted by / 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.

credit scores after bankruptcy go up

I think nearly everybody should have a credit score after bankruptcy above 670 in three years.

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.

 

 

 

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14

May 2016

Keep the Car In Chapter 7 Bankruptcy

Posted by / in After Bankruptcy, Weekly Posts /

Keep the Car In Chapter 7 Bankruptcy: What Are your Choices?

When you file Chapter 7 bankruptcy, you are “in the drivers seat” with some choices on how to keep the car.

One choice is to give it back.

One choice is to give it back.  Especially if you have a terrible interest rate on the car—and if you can put your hands on a junker—give them the car back. You are supposed to give the car back six weeks after you file your bankruptcy case. That gives you time to figure out another way to get around.

(Finding another way to get around is NOT going out and financing a car right after the bankruptcy. You’ll find car dealers eager to put you in a car at 24%—that gets you right back into financial trouble. But if you have a friend or family member who can give or lend you a car for a year or longer, you can then find some good financing deals. You can read about Alice, who got a 4.76% a year after bankruptcy. People who have a friend or family member who knows a lot about cars, also have good luck buying a car for cash, through a site like EBay.)

You can keep up the payments and keep it

Except for the special problems with Ford and Credit Unions, you can keep up the payments and keep your car. For most people, this is the best choice. No paperwork is required, you just need to be sure to make the payments on time. If you get late, they won’t call and yell at you. (That would violate the bankruptcy discharge.) They will just come and get the car.

Since they don’t want to violate the bankruptcy law, most car finance people will stop billing you. You need to pay them on your own. Honda Financial Services has a good set of instructions. And here are sample instructions from USAA. Making the car payment will be like paying the rent—you gotta remember.

You can redeem your car.

If you owe more than your car is worth, but really like your car, you can redeem it. You can keep the car by just paying the book value. (Book value under the 2005 law is what you’d have to pay to buy it.) There are some honest lenders who will finance that straight out of bankruptcy.  One we used is called 722 Redemption. If you know your car is in good shape, this can be the way to go.

But you now have an after bankruptcy car loan. If you pay it, you are building up good credit. If you don’t, you are building up after-bankruptcy bad credit. You really don’t want after-bankruptcy bad credit.    

You can keep up the payments and change your mind later.

Keep the car

Suppose a year later, your car has mechanical problems. You can change your mind and give it back.

The good thing about keeping up the payments is, down the line you can change your mind. Suppose a year later, the car has mechanical trouble. You can give it back without owing anything and without damage to your credit.

Suppose a year from now, your uncle offers you his car. You can give the old one back, without owing anything and without damage to your credit.

Suppose two years from now, your credit union will offer you a car loan at 3.9%. You can give the old one back, without owing anything and without damage to your credit.

People often ask me, how long do I have the option to give the car back? My answer: Until it’s paid for. Once it’s paid for, you can’t give it back.

Is there any paperwork? None. Just call and tell them to come and get it. Or, stop paying and they will come soon enough.

Can I keep the car without making the payments?

The short answer is, No, you can’t keep the car without making the payments.  

At least, you can’t keep the car–unless the car finance company never bothers to come any get it.  Sometimes they never bother. If the car will bring good money at a car auction, they are going to come and pick it up.  But recently, a couple of people have told me nobody ever came and got their cars. Those were cars with about a hundred thousand miles on them–not junkers. But the credit union, in both cases it was a credit union, never picked them up.

So, you might get lucky. 

Can I reaffirm the car loan?

There are reasons why some people need to reaffirm car loans with Ford or with Credit Unions. Except for them, reaffirming a car loan is not a good idea.

The car loan people want you to reaffirm—because it benefits them, not you. When you call, they will tell you your lawyer should have reaffirmed—because it benefits them, not you.

Under the law, the judge will not approve a reaffirmation, unless I sign off that it’s a good idea. 

I don’t think it’s a good idea. So I’m not signing off. So the judge is not approving it. (The judge can, and often does, turn it down even if a lawyer signs off. Which I don’t.) 

I explain more on that, here. 

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14

May 2016

Filing Bankruptcy and Keeping Your Car with Your Credit Union

Posted by / in Weekly Posts /

The Small Print Says Your Credit Union Can Repossess Your Car If You Are Late on Your Credit Cards.

When you get a car loan from a credit union, you sign in small print that they can repossess your car if you don’t pay your credit cards.  (I have never seen a bank do this; I don’t know why they don’t.)  That would apply to a credit card you already had with the credit union, or one you get later.  This is usually called cross-collateralization. 

Credit union car loan

Credit Unions get you to sign in small print that they can repossess your car if you don’t pay your credit cards.

Credit Unions really do it, too.  If you get maybe three months behind on your credit card payments with your credit union, they will apply your car loan payments to the credit card, and send the repo man to your house, to pick up the car.

How Does Bankruptcy Change That?

The basic rule of law is that secured debts–debts attached to something like your car–pass through the bankruptcy unaffected.  So the deal may still be the same.  

In my experience, once you file for bankruptcy, the credit unions will usually allow you to just pay the car loan.  (Since the credit card is discharged, applying the car payment to the credit card would violate the bankruptcy discharge.)  But once the car loan is paid for, they won’t send you the title.  That’s because the credit card is still attached to the car and the credit card has not been paid off. So, you never really have a paid for car.

If they want to be mean about it, the credit unions can just pick up the car.  Because under the 2005 bankruptcy law, they are allowed to pick up your car when you file bankruptcy, even if you are current.  (I explain that, here.) I’ve seen Alaska Credit Union and Suncoast Credit Union do that.  (There are probably others that do. There are 7000 different credit unions; I barely know seven.)

The Credit Unions around here will give you a chance to reaffirm the loan.  That means you make a new, after-bankruptcy promise to pay, and they agree to accept it.  When that new promise is paid off, they should send you the title.  (They “should” send you the title. The reaffirmation form, set by law, says nothing about that. I got into a fight with Apple Federal Credit Union on that, once.  Apple, an outfit we like, then agreed to send the title.)

Ordinarily, I do not like to reaffirm car loans, as I explain here.  But you do get something when you reaffirm with the credit union. You get the title when the reaffirmed loan is paid off. So if you want to, I’ll sign your reaffirmation. (I charge $100 for doing the very annoying form.)

Do They Ever Negotiate?

Recently, I had a client who had two car loans with PenFed Credit Union. On one, he was about break even; on the other, he owed $11,000 and the car was only worth $8,000. He told me to tell PenFed, “I won’t reaffirm for more than the car is worth.” So, I crossed out his agreement to pay back $11,000, wrote in $8000, and sent it back to them.  They told me, “We’re not negotiating on the loan; we’re coming to get the car.” “Don’t do that,” my client said, “I’ll sign.”

As your lawyer, I have to sign on your reaffirmation, that I helped you “negotiate” the reaffirmation. I’ve never actually negotiated any change from what the credit unions demanded. They will drop the credit card cross-collateralization; beyond that, they won’t budge.

 

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16

Jan 2012

Filing Bankruptcy and Sleeping Better

Posted by / in After Bankruptcy / 1 comment

After filing bankruptcy, people say they sleep better. That’s one of the exciting findings of a new survey, done through SurveyMonkey.com, of those who filed bankruptcy in 2009 and 2008.

In all, 93% said life was better because they filed bankruptcy.  Nearly all, 88%, said better sleep was one of the reasons why.

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02

Jan 2012

Bankruptcy and real estate taxes: Counties are desperate

Posted by / in Virginia Bankruptcy / 6 comments

Bankruptcy and real estate taxes:  Counties are desperate

 

Filing bankruptcy gets rid of most of your debts; but it does not necessarily get rid of most of your problems.

For some people, real estate that they already moved out of is a problem.  Filing bankruptcy does not mean the bankruptcy court takes over your house.

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04

Oct 2011

Bankruptcy is not a car wash

Posted by / in After Bankruptcy / 4 comments

I don’t take the “car wash” approach to bankruptcy.

Car wash approach?  What’s that?

At the car wash, you drive up, pay them, they run your car through, and you drive off.  The car wash doesn’t care where you have been, or where you’re going.  They don’t care what happens once the car wash is over.

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22

Jul 2011

After bankruptcy–getting your credit report right!

Posted by / in After Bankruptcy / 19 comments

Here’s an email I got today from Jennifer.

Jen and Ken filed bankruptcy in February 2010. Because Jen’s bankruptcy does NOT show on her credit report, her credit score is much lower than Ken’s.

( Jennifer and Ken are not their real names.)

Bankruptcy lawyer Robert Weed

If your after bankruptcy credit report isn’t right, we’ll work with you on dispute letters to the credit bureaus. If letters don’t work, we’ll sue.

“Mr. Weed:

“Our discharge was a one year ago in June 2010. When we tried to buy a car back in December 2010, the Chapter 7 discharge was not on my credit report. I pulled my credit a few days ago and the discharge is still not showing, many accounts are marked as delinquent and my score is terrible. I filed several ‘disputes’ with Equifax but this could take up to 45 days. Why is the discharge not on my credit report? What can I do to fix this?? I am very frustrated that my credit looks terrible. The discharge is showing on Ken’s (husband) and his score is much better.

“Thank you for your help.

Thanks,
Jennifer H”

Jennifer, you are right.

If your bankruptcy is not correctly reported on your credit report, your credit score will stay terrible.  It will seem like forever getting back to good credit.

I spoke on this at the convention of the National Association of Consumer Bankruptcy Attorneys ten years ago.  Back then, seven out of ten people came out of bankruptcy with creditors ignoring the bankruptcy and hitting their credit report.   A couple dozen lawyers around the country have sued them on this a lot.  Now “only” about one person out of three has that problem.

Two of my staff, lawyer Brian McMorrow and paralegal Janet Robertson, spend almost full time fixing people’s credit reports.  (Besides credit bureaus, they also sue debt collectors.)

Here is the link to my instructions on getting your credit reports and getting them to Janet.  Janet has looked at ten thousand credit reports!  She’ll look at yours, write dispute letters–and if the disputes don’t work, Brian will sue.

A dozen times, I’ve seen creditors and credit bureau lawyers come into court and claim that bankruptcy is the reason people have low scores.  Jen and Ken’s example shows that argument is bogus.  After bankruptcy, people keep low scores when they don’t get their credit report right.  Ken has built his score back up–because the bankruptcy shows he cleared his debts.  Jen’s debts are still showing charge off.  That’s why her score is lower.

Jennifer, we’ll get that fixed.  Please follow up with Janet.  If the dispute letters don’t work, we’ll sue.

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18

May 2011

File bankruptcy? Stop paying? Don’t leave that house!

Posted by / in After Bankruptcy / 405 comments

File bankruptcy? Stop paying? Don’t leave that house!

Here’s a quiz.  You’ve decided to file bankruptcy to get rid of that big mortgage payment.  When is the right time to move out of the house?

1.  When you know you can’t afford it?

2.  When you fall three months behind?

3.  When the bank tells you your house will go to foreclosure?

4.  Right before you file bankruptcy?

5.  Right after you file bankruptcy?

6.  None of the above.

The answer is none of the above.  Leaving the house before you have to, can be a very expensive mistake.  Especially if you have a home owner or condo association.

When you move out–even if you file bankruptcy–you still own the house.  You are responsible.  You are responsible if there’s an accident.  You are responsible for zoning.  You are responsible for paying the association.

Bankruptcy lawyer Robert Weed

Virginia Bankruptcy Lawyer Robert Weed

The bankruptcy court for sure isn’t paying your home owner association fees.  And, if you aren’t paying the mortgage company, they aren’t paying the association, either.  That leaves you.

Those after bankruptcy association payments are after bankruptcy debts.  That means, they are yours.

I’m seeing people who stop paying and file bankruptcy with me; and four months later the bank has foreclosed them.  I’m also seeing a few people who stopped paying and filed bankruptcy with me in 2009 and the bank still has not foreclosed.

If you are still living there, two years for free (except for the association) is a good thing.  If you move out and pay rent somewhere, two years of  still paying that home owner association–that’s a real headache.

When people talk to me about filing bankruptcy and giving up the house, I tell them, don’t move out!  If you have already moved out, rent it!

Before the crisis mortgage companies were quick to foreclose.  (At least in Virginia, where foreclosures are easy.)  Five months after you stopped paying, you were foreclosed.   In the sixth month, if you hadn’t moved out, you would be evicted.  Filing bankruptcy right before the foreclosure would get you three more months, but that’s all.

That still happens–a lot.  But a lot of times it doesn’t.  There’s no way to predict–except that houses with big association fees often sit much longer.

Some of the reasons foreclosures are slow have been in the news.  The whole loan modification thing; paperwork problems; the fact that the foreclosure lawyers can’t keep up with the volume.

Some delay is just an investment decision by the mortgage companies.

Suppose there are thirty houses in a little neighborhood and ten of those had mortgages with a bank I’ll call Bank of the Galaxy.  Two of those ten have already filed bankruptcy and gone to foreclosure.  Galaxy fixed one up and sold it; the other is sitting empty.  Seven are current; and the last one is yours–you just filed bankruptcy and you are five months behind.

You and your eight neighbors owe $225,000 on the mortgage and the last house Galaxy fixed up and actually sold went for $110,000.  The best offer they have on the one sitting empty was $101,000 and they figure if they have to sell your house too they’d be lucky to get $95,000.

Well, $95,000 is better than nothing, right?  Not necessarily.  Galaxy is worried about your seven neighbors who are still paying.  Those families ask themselves, every month or maybe every week, why are we still paying a $225,000 mortgage on a $110,000 house?

When your house sells for $95,000, Bank of the Galaxy figures one of your seven neighbors will say, that’s it!  That neighbor stops paying, files bankruptcy, and now they have another house on their hands.

Bank of the Galaxy would rather have you sit in your house, for a while, then tell everyone in the neighborhood that the houses they thought were worth $110,000 have now dropped down to $95,000.  (Here’s a scary article about how foreclosures have knocked three TRILLION dollars off the vlaues of people in the neighborhood.)

Now I said at the beginning, you should not move out until there has been a foreclosure.  As your bankruptcy lawyer, that’s easy for me to say; it’s harder for you to do.  Because you need to have a place to live lined up.

Nobody much has built either houses or apartments in the last few years.  So rents are high, and places to rent are scarce.  And it is harder to rent if you have bad credit or have a bankruptcy on your credit report.  You need to have a place to live lined up.   But if you panic and move out before you have to, you could end up paying the association on an empty house for another six months or a year.

 

Update:  After filing bankruptcy don’t leave that house

I’m writing in Falls Church Virginia in March 2014–our fifth snow storm this year.  Stephanie (not her real name) emailed me that she has taken a job next school year teaching in the U. S. Virgin Islands.  Doesn’t pay that well, but the weather is great.

Chapter 7 bankruptcy to stop foreclosure

Stephanie filed Chapter 7 bankruptcy to stop foreclosure in August 2010. In March 2014, she’s been offered a job in the Virgin Islands. She hasn’t made a house payment in three and a half years.

You probably don’t have a job offer in the Islands.  But here’s how Stephanie’s story affects you.

Stephanie filed Chapter 7 bankruptcy with me to stop a foreclosure in August 2010.  She’s lived in her house in Ashburn for three and a half years, without paying either the first or second mortgage.  Now that’s very unusual.  But it makes my point.  Until they throw you out, don’t leave that house.

Cary Ann: Don’t leave that house.

Cary Ann filed bankruptcy with me in August 2013.  She immediately stopped making mortgage payments. Four years later, in August 2017, her mortgage company approved her for a “short sale.”

As part of that short sale, they gave her a $10,000 relocation bonus.  So after her Chapter 7 bankruptcy in 2013, Cary Ann lived in the house for four years without making a house payment. And then got $10,000 reward for moving out!

This is very rare; very rare. But it makes my point. Just because you stopped paying and filed bankruptcy, that does NOT mean your mortgage company is going to quickly foreclose on your house. Usually they do, but sometimes they don’t. My advice, and I know this can be hard to do in reality, be ready to move out, but don’t leave that house.

 

 

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27

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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NORTHERN VIRGINIA BANKRUPTCY LAW OFFICES