Brent’s Credit and Debt blog

I normally don’t like the New York Times.  They seem to have a seriously biased slant to their reporting, and I prefer a more balanced view of things.  However, in this case, one of their reporters has things dead on.

Susan Saulny, a writer for the New York Times, has written a story about a new problem with Foreclosure:  The bank may not want your property back!

In some cases, the cost of the foreclosure exceeds the value of the property.  In that case, the lender may not go through with the foreclosure, which means the holder of the title (the current homeowner) is liable for the property.

The real problem, though, is that in some cases the former owner moves out, but when the foreclosure stops, the former owner is liable for the property.  In the article, Ms. Saulny goes on to explain that this liability may include fines if the home is not kept up, as well as other fees.

The rest of this story is available here:

http://www.nytimes.com/2009/03/30/us/30walkaway.html

If you have filed for bankruptcy, you are going to have to repair your credit.

The question becomes when do you start?  My latest Ask Brent video addresses this.  You can watch it here: httpv://www.youtube.com/user/MyCredEd. You can also see my blog entry on this subject by clicking here.

Remember to ask your questions about credit and debt in the form to the right.  I will answer via blog or video as soon as I can!

When you fill out the form, your question goes straight to my email inbox.  I am an email addict, so I will see it quickly.  If I put your question into a video, or answer it in a blog, I will send you and email back to let you know the answer is ready.

When you file for bankruptcy, you may choose to keep some of your debts. For most debts, like credit cards, you just keep making payments and your creditor will probably never say a thing.  All debts must be included in your bankruptcy so that your creditors may be notified that you have filed.  This list of creditors will be notified by the courts that you have filed for bankruptcy, and they can choose to close your account or to let you keep it.  Keeping an account may require an affirmation of debt.

It is fairly common for a debt to be missed in the list of creditors provided to the court.  Omitting a creditor intentionally is perjury.  The law allows you to add creditors to a certain point in the proceeding.  If you do not specify a creditor, and the court determines that perjury was committed, they may discharge your case and you may be subject to other penalties as provided by bankruptcy law.  When I worked with my lawyer to put together my list of creditors, I forgot a couple of creditor, such as my utility company and cable television company.  We had to petition the court to add these in later, and I had to pay extra for the filing, so be careful to get everything included.

When I filed for bankruptcy, I decided to keep my truck. That was actually a fairly bad decision, as it needed work and was worth less than I owed on it, but I was worried that I wouldn’t be able to get another car loan.

The truck was listed on the bankruptcy. After the bankruptcy was discharged, I talked to my credit union that held the loan, and told them I wanted to keep the truck. They had me sign a document called a ‘Re-affirmation of Debt’ that allowed me to keep the truck and continue to make payments on it.

This document actually protects the lender. Because the truck was included in the bankruptcy, I could have walked away from it at any time. The bank would have had no recourse but to take the truck as included in the bankruptcy. However, the re-affirmation allowed the bank to be able to repossess the truck if I defaulted on it, and also allowed them to go after collections if I owed money. It is basically a new contract, and as it was signed AFTER the discharge, they hold all the power.

A couple of things to consider if you think you want to re-affirm a debt:

1. If you have a secured loan, consider if whatever you are getting a reaffirmation for is worth the money. You have an opportunity to wipe the slate clean and start fresh. That may be a better option for you.
2. You will be legally obligated for the debt you sign for once you re-affirm. The bankruptcy no longer has any authority over that loan.

You probably can get credit following a bankruptcy, but it is getting much harder to get. You should make sure you re-establish credit quickly with a secured loan or other credit option, and the sooner you start the better off you are.

To learn more about how to fix your credit and keep it clean, get my e-book ‘Credit Cleanup’ by clicking the link. ‘Credit Cleanup’ will walk you through how to repair your credit, and tell you how to keep your credit clean.

If you are getting calls from debt collectors, you should read my FREE  e-Book ‘The Top 10 Questions A Debt Collector Might Ask You’. This book takes you through a list of things you might be asked by a collector, and how they use information they get against you.  Just click here, or the link above, to get your copy now!

When you file for bankruptcy, you will be asked to provide a list of your creditors, and any accounts that are to be included in bankruptcy. This list is intended to be exhaustive. The court will take your list, and use it to notify your creditors that you have filed for bankruptcy protection, and let them know that they can no longer pursue collections against you.

When I filed for bankruptcy, I kept a single credit card account, my Kohl’s card, and I also kept a loan for my truck. Other than that, I wanted everything included. I kept those two accounts because I wanted to be able to buy clothes at Kohl’s, and I needed a vehicle and couldn’t afford a used car loan. I listed everything else I knew about, and my lawyer pulled information from my credit report for inclusion in the bankruptcy. I thought everything was included.

However, after my bankruptcy was over and discharged, I found a couple of accounts that had been missed. They hadn’t reported to my credit reports until later. One was for my satellite TV, and the other a doctors’ bill that went to collection, that wasn’t even mine. Since both accounts were opened before the bankruptcy, they were included automatically.

Why? The US 6^th Circuit Court of Appeals ruled that all accounts that were open at the time of a bankruptcy are included, regardless of whether they were included in the filing or not. While that hasn’t gone to the Supreme Court, it has held up when tested. This means you don’t have to include a debt your self for it to be included in your bankruptcy.  However, deliberately omitting a debt from your creditors list is illegal.

But what about the things you want to keep? Typically, you sign a re-affirmation for a debt you want to keep, and continue to make payments on it. This will exclude it from your bankruptcy, and will allow the debt to be kept by the consumer. Your creditor has the right to refuse to re-affirm the debt, but if they do that they lose their money, so they will usually work with you.

The answer to the question is that you can keep some of your debt in a bankruptcy, but any account you keep needs to be re-affirmed. Otherwise, they will be considered as included in the bankruptcy.

To learn more about how to fix your credit and keep it clean, get my e-book ‘Credit Cleanup’ by clicking the link. ‘Credit Cleanup’ will walk you through how to repair your credit, and tell you how to keep your credit clean.

To get a copy of my FREE e-Book ‘The Top Ten Ways You Can Wreck Your Credit’, just click the link. You will be taken to a page where you can get more information about downloading the e-book. This book tells you what you should avoid doing concerning your credit, and what negative impacts can occur if you treat your credit wrong.

After my bankruptcy was filed, I made a huge mistake. I didn’t apply for any credit. In fact, I waited two long years before even attempting to get a credit card. My credit scores didn’t go up much, and I was in pretty bad shape from a personal credit standpoint. Then, I discovered the sub-prime credit market.

One of the little secrets about credit is you have to use credit in order to build your scores. If, after a bankruptcy, you don’t have any credit, your scores will stay very flat. In order to fix this, you have to get credit, and use it responsibly. Each month that you make an online payment, you will get a small boost in your scores. This small boost, over time, will give you a much better credit score. You will also have access to more credit as your scores build. You HAVE to make sure your report stays clean!

The first thing you can do is try to apply with a couple of different creditors. Orchard Bank, Household Bank, and Target will all give a person a chance on rebuilding their credit. However, they may want your bankruptcy to be discharged before they will talk to you. Orchard bank usually gives a starting credit limit of $300.00 to $500.00, and Household bank is at about the same level. Target starts most people with a $200.00 limit.

You can apply for all of these cards online. They are real credit cards, unsecured, and they all report to all three of your credit reports monthly.

If they turn you down, try for a secured card. In my next blog entry, I will give you more information about that.

Here are links for the banks I mentioned:

Orchard Bank: http://www.orchardbank.com

Household Bank: http://www.householdbank.com

Target Redcard: http://www.target.com

The important thing is to make sure you can handle the credit! If you get cards and use them irresponsibly, you will ruin your credit. Make your payments on time, and don’t go over your limits!

To learn more about how to fix your credit and keep it clean, get my e-book ‘Credit Cleanup’ by clicking the link. ‘Credit Cleanup’ will walk you through how to repair your credit, and tell you how to keep your credit clean.

To get a copy of my FREE e-Book ‘The Top Ten Ways You Can Wreck Your Credit’, just click the link. You will be taken to a page where you can get more information about downloading the e-book. This book tells you what you should avoid doing concerning your credit, and what negative impacts can occur if you treat your credit wrong.

When you file bankruptcy, you are, by law, going to get relief from creditors. Now that you have filed, however, the collectors just keep on coming after you. Are they allowed to do that?

The short answer is no. They can’t try to collect on that debt.

Are you ready for the longer answer? I figured you might be.

When a collection agency buys an account, it has already been defaulted on. In other words, you didn’t pay your bills on time, and so someone is calling you to get some money. This is all perfectly legal, and in fact you agreed to it when you signed your loan paperwork, or when you clicked ‘OK’ to the terms and conditions of your credit card.

There are times, however, that your defaulted account is purchased after you filed bankruptcy, and before your lender is notified that you filed.

This happened to me. My satellite TV company wrote my account off, and then sold the account to not one, but two different collection companies! That seems a little iffy by itself, but isn’t really relevant here.

Here is how the debt collector looks at things: When you tell a collector that you filed for bankruptcy, they have to look at a couple of things. First, are you lying? Lots of people do lie and say they have filed when they didn’t. Unless you have paid your money and gotten a bankruptcy case number, you have not filed bankruptcy. In other words, just talking to a lawyer about it isn’t enough. If you have filed, just give the collector the case number, and your attorneys name if you used one, and they will verify the bankruptcy and leave you alone. If they bug you again, you can take action against them. However, if they can NOT verify the bankruptcy, then by law you are fair game.

A second thing the collector will look at is when your account was opened compared to when you filed bankruptcy. A bankruptcy will include accounts you had before filing, and in fact up to the day of filing. But it will not include accounts you open after filing for bankruptcy. If you go out and get a new credit card after filing for bankruptcy, you are liable for the credit card balance.

The collector will check things out, and if in fact you had that account included in bankruptcy, they will drop the collection effort. They may ask for documentation (send them to your lawyer), but they will have to drop it.

So, you may very well see an account or 2 that are in collections when you look at your credit report. Don’t panic, these are easy to clean up. Just contact the collection agency and get them removed.

To get a copy of my FREE e-Book ‘The Top 10 Questions A Debt Collector Might Ask You’, just click the link. You will be taken to a page where you can get more information about downloading the e-book. This book tells you what you might hear during a call from a collector, how they use the information they get from you, and how you can protect yourself by not divulging too much.

OK, your bankruptcy has been filed.  You might have a discharge, or might be on a payment plan.  Either way, you need to start RIGHT NOW to build your credit back up. I personally made a mistake. 

After my bankruptcy, I waited 2 years to get started on rebuilding my credit.  I thought you HAD to wait, and that no one would give you a card, or a car loan, or any other kind of credit.  I was wrong. 

The truth is that there are 2 primary kinds of credit, and those exist in 2 brackets.  Let me explain this a bit. 

Loans come in 2 varieties.  You can have secured debt, like a car loan or a mortgage, or you can have unsecured debt, such as a credit card or signature loan.  When you buy a car, the bank holds the title to the vehicle.  If you default on the loan, they get the car back so they can sell it to someone else.  For a home mortgage, the mortgage company holds the deed to the property.  As long as you have a mortgage, you don’t own a home, you are buying one.   

Credit cards are different.  When you buy something with a credit card, it is yours.  Even if the credit card company tried to come after what you bought, you could have sold it, or thrown it away.  And since many people use credit cards for food and gas, it can be pretty hard for your credit card company to come after your digested food.  Although you may feel like giving it to them… 

But I digress.  The question at hand is how to get credit after bankruptcy.  We are going to get there in a minute, but first let’s look at how to keep credit during a bankruptcy. 

When you declare a bankruptcy, you do NOT have to include all of your debts as part of the filing.  You are including the debts you want to get rid of.  As an example, when I filed, I had a zero balance Kohl’s card that I didn’t even consider.  So, I kept it.  Kohl’s left my interest rate and credit limit alone, and I was able to use the card.  My Sears card, with a high balance, was closed by Sears.  I understand that.  They didn’t want someone that wouldn’t pay off their debt to be one of their customers. So, at the end of my bankruptcy, I had a Kohl’s card. 

If you have a very low balance card, or a zero balance card that you think you can keep, it would be a great idea to do so.  Even if you have a card with a higher balance, it make be a good idea to call the credit card company and see if they will work out a payment plan with you and let you keep the card.  They might be willing to do this if you explain the situation. 

Now, how about after bankruptcy?  Well, you have a couple of options.  First, if you have a credit union that you bank with, check there first.  They are often lenient and may give you a real credit card.  If they do give you one, make sure that they report to all 3 credit bureaus.  You want your on-time payments to show up on your credit report. 

If that doesn’t work, there are a couple of things to try.  First, go to Orchard Bank (http://www.orchardbank.com/) and Household Bank (http://www.householdbank.com/).  They deal in the sub-prime debt market, meaning they will take a chance on you.  If you have a reasonable income, they might be willing to do business with you.  They offer both secured and unsecured cards, so you can try for either.

Which brings us to secured credit.  There are really just a couple of kinds of secured credit that you should be interested in at this point.  The first is a secured credit card, and the second is a secured loan.  The idea behind these credit programs is simple:  you put up the money, and the bank takes no risk.  Let’s say, as an example, that you choose to open a secured loan.  You take $500.00 to the bank, and they open a new, special account for you just for this loan.  You deposit your $500.00 in the secured loan account.  The bank then ‘loans’ you $500.00!  You make regular payments of less than $50.00 per month for a year, and you have paid off your secured loan.  If for some reason you default, the bank still has your money.  What this does is give the bank a way to earn interest risk free.  But, it also allows you to establish credit. 

A secured credit card works in much the same way.  You deposit your $500.00 in your special account, and the bank gives you a $500.00 line of credit on a card.  Then, you can make purchases up to $500.00.  You make regular payments, and build your credit.  If you default, the bank already has their money, so again this is a no-risk deal for them. 

After a period of time, your scores will start to go up with regular payments.  But remember, just one negative will crush your score again, so don’t be late!

To get a copy of my FREE e-Book ‘The Top Ten Ways You Can Wreck Your Credit’, just click the link.  You will be taken to a page where you can get more information about downloading the e-book.  This book tells you what you should avoid doing concerning your credit, and what negative impacts can occur if you treat your credit wrong.

So you are filing for bankruptcy.  You are taking the plunge.  A bit confusing, isn’t it?

Well, the process is pretty well laid out.  There are a few steps you will take, and then with luck, it will be over.  I’m going to give you a quick overview, but you really should ask your lawyer what to expect.

First, you have to file for bankruptcy.  While you can do this yourself, I would definitely recommend an attorney to help you out.  After all the paperwork is filled out, it is turned in to the bankruptcy court.  The court stamps the application with the date they receive it, and that becomes your filing date.

After filing, you get to wait for your hearing.  This hearing, known as the ‘341 Hearing’, named for the section of the US Bankruptcy Code that describes it, is a meeting between yourself, your attorney, your creditors, and the bankruptcy trustee assigned to your case.  It is unlikely that creditors will show up for this.  Most of us have very few assets if we are filing bankruptcy, and we really have very little to contribute to the repayment of debt.  Sears is not going to come after your washer and dryer, as they have no real value.  It is cheaper for them to take a charge-off against the loss and get a big tax break.  Your mortgage company, or car loan holder may have something to say about things, but in many cases they won’t show up either. 

The trustee gets paid by the case, so they want to keep things moving along.  Most meetings only take a half hour or less, and the trustee will see dozens in a day.  They really don’t care about your personal situation, so you won’t need to explain much.  All you really need to do is answer a few questions, and it is over.  The trustee has the right to take some property in a Chapter 7, but you will probably keep your house, a vehicle, and your furnishings.  They will take jewelry, cash, savings, and firearms that can be easily sold, along with other assets as they see fit, unless you are filing a Chapter 13..

If you are filing Chapter 7, that is usually it.  You probably won’t meet the judge, and probably will never have to look at the case again until you start to fix your credit.  You will wait for your discharge, which I will explain in a minute.

In a chapter 13, however, you will get to meet the judge.  Usually, this is an informal hearing to talk about the repayment plan that you come up with and present to the trustee.  If you file Chapter 7, but still have the ability to repay, the trustee will change it to a chapter 13 and help you set up a payment schedule.  This payment schedule will usually last from 3 to 5 years, and then the remaining debts will be discharged.  Usually, you get to keep all your stuff in a Chapter 13.

About 3 months after a Chapter 7 hearing, you will get a discharge.  This means you are free from the debts you had before the bankruptcy, unless you worked things out with your creditors to keep them.  That’s it.  It’s over.  You get to start rebuilding.  The date of the discharge is, kind of obviously, called the discharge date, and that is the date that things are final.

With a Chapter 13, you make all the payments on your schedule, and then you get the discharge.  You are free of the debts on your schedule, and get to keep your stuff.  Of course, anything you reaffirmed with your creditors may still require payments, like your house for instance.  Keeping your debts, such as a house or car, is known as a reaffirmation, and that means you are reaffirming that you will pay for the debt.

A couple of caveats here:  If the court decides that you aren’t worthy of bankruptcy, they may issue a dismissal, which says that the bankruptcy did not go through.  It still shows up on your credit report, but you don’t get the advantages of completing the process.  If that happens, there will be a dismissal date on your report.  You can always re-file to correct the problem, but if they had a reason to dismiss, you may be in trouble anyway.

Finally, if you want to quit your bankruptcy, you can do that any time prior to the discharge date, which means you are still liable for ALL of the original debt amounts.  This is called a cancellation, and you will see a cancelled date on your report.

Want all the ugly details?  You can find more information here:  http://www.uscourts.gov/bankruptcycourts/bankruptcybasics/process.html.

To get a copy of my FREE e-Book ‘The Top Ten Ways You Can Wreck Your Credit’, just click the link.  You will be taken to a page where you can get more information about downloading the e-book.  This book tells you what you should avoid doing concerning your credit, and what negative impacts can occur if you treat your credit wrong.

We can just go ahead and answer this now:  10 years.

However, what does that really mean?  10 years from when?  Well, the removal date of a bankruptcy is determined based on the filing date of the bankruptcy, NOT the discharge date.  Either chapter 7 or chapter 13 debts will fall off after those 10 years are up.  However, it is possible that the credit bureaus will remove them after 7 years, if you request it.  They may not remove the entry, but you can dispute it at that time and it may fall off.

But what about all the accounts included in bankruptcy?  Well, they will be on your report for 7 years.  Here is the trick, though.  The 7 years is calculated based on the first date of delinquency on your account.  In other words, the clock starts as soon as you miss your first payment resulting in default.  So, if you start missing payments in January, but don’t file bankruptcy until November, the clock starts for your 7 years in January.  You will need to check your reports for this, as each creditor will report the late payment differently.

Does it matter if you file Chapter 7 or Chapter 13?  Nope.  Not really.  On a Chapter 13 repayment plan, your discharge date won’t occur until the payment plan is satisfied, but the clock starts ticking with the filing.

So, what it boils down to is this:  You have 7 years to see the individual items fall off, and 10 for the bankruptcy itself.  Of course, by working diligently you can get all of them removed much quicker, but that does take work and a bit of knowledge.

To get a copy of my FREE e-Book ‘The Top Ten Ways You Can Wreck Your Credit’, just click the link.  You will be taken to a page where you can get more information about downloading the e-book.  This book tells you what you should avoid doing concerning your credit, and what negative impacts can occur if you treat your credit wrong.