HOW TO REBUILD YOUR CREDIT AFTER BANKRUPTCY?

You have just received your bankruptcy discharge, and you may be wondering to yourself, now what? How do I go about rebuilding my credit? What steps can I take to improve my credit score? When I researched this topic online virtually all the articles that I read basically emphasized the same thing: Do not incur more debt, pay all your bills on time, and obtain a secured credit card and pay it off in full each month. In fact, here is a good article on this topic Life After Bankruptcy: 5 steps to Rebuilding your Credit, Finances and Emotions, written by Lynnette Khalfani.

There is however one key piece of advice that most news outlets seems to glance over and that is the need to ensure that your credit report is properly reporting your bankruptcy discharge.

All the debt that existed on your credit report on the day you filed your case (regardless whether you were current on the particular obligation, 90 days late, account has been charged off, in collections, etc.) now must be reported by the credit bureaus as “discharged/included in bankruptcy” AND must show a zero balance.

Why is this so important? Because in one of life’s many ironies, a credit report 12 months after a bankruptcy discharge will look better –as in higher credit score- then probably 2/3 of people out there who have not filed for bankruptcy! Why? Because the amount of debt to income ratio, a key component in determining your credit score, looks incredibly good now that you are debt free! Other than student loans, you now have 0 debt, something that not many Americans can say. In addition, the credit score is all about the here and now. It is all about what you have done, or not done, for me lately. As in, a lot more emphasis is placed on the last 12 months of your account activity. And as long as you have not racked up a whole bunch of debt since getting out of bankruptcy things are looking pretty darn good.

So, what you need to do is wait about 60-90 days after the bankruptcy discharge has arrived and then order your credit report from the three major credit bureaus: Transunion, Experian, and Expedia. NOTE: DO NOT ORDER YOUR CREDIT REPORT ONLINE. Then, examine the credit report and make sure that all accounts are now showing “included/discharged in bankruptcy” and showing a “zero balance.” If you would like you can email me your credit report and I will take a look. If one of the accounts is being improperly reported by the credit bureaus then you will need to write a dispute letter to the credit bureau. I can help you with that as well. If that does not get things fixed, then you may have to write one more dispute letter.

Finally, if after a couple of attempts the problem has not been fixed, then you have no choice but to sue them under the Fair Credit Reporting Act. As the name implies, the credit report must be fair in what it depicts and fair means accurate. There is nothing fair or accurate about continuing to report a $5,000.00 credit card balance or showing it as “charged off” or “late” or “in collection” when the debt no longer exists as a result of the bankruptcy discharge. And since asking nicely has not worked, you have no choice but to sue. Notice that the credit bureaus get one or two free bites at the apple…as in, they are not held liable for the initial reporting error, but what gets them is their failure to properly reinvestigate upon being advised of an error.

So forget all the fancy advice out there and start with the basic stuff. Order your credit report and make sure the bankruptcy is properly being reported.

 

THE FORECLOSURE PROCESS IN VIRGINIA

With all this talk out there about foreclosure you may be wondering just how the process works here in Virginia? What requirements are imposed on the lender before foreclosing on your home? Surely, before someone can take your house there is bound to be some court intervention right? After all, this is the country that holds the term “due process” in very high regard.  There is bound to be at least some administrative hearing as would be the case with a parking ticket that you sought to challenge right? And if nothing else, you are entitled to be served with the foreclosure documents as would be the case with a civil lawsuit where you are being sued for $5,000.00 right? Regretfully, the answers to the foregoing questions is no! The fact of the matter is that the foreclosure process in Virginia, from the lender’s stand point is fast, cheap and easy. Here is why:

Non-Judicial Foreclosure-

  • Shocking as it may sound, a lender in Virginia is not required to sue you in court prior to foreclosing on your home. That power is derived from that huge document that you singed at closing when you purchased/refinanced your house called the deed of trust. This document states that the home is to serve as collateral for the loan that you are receiving form the bank.  It also states that in the instance of a default (such as not paying your mortgage) the bank has the right to sell your home in order to satisfy the mortgage they gave you. That is the “power of sale” clause that is enforced by the trustee appointed by the lender. The trustee is acting as the agent for the lender.
  • Advertising requirement- If the deed of trust contains a power of sale clause that specifies the terms of the foreclosure sale and the time and place of the sale, then the specified procedures must be followed. More often than not the deed of trust is silent on the details of how and where the foreclosure is to be conducted.  Ditto on the need to advertise the foreclosure sale in the local paper. Virginia law states that if the deed of trust does not provide for advertising, then the ad shall be run once a week for four successive weeks. This is why homeowners receive the unsolicited offers in the mail from bankruptcy law firm, realtors and scam artist to help them with their upcoming foreclosure of their home. The fact that your home is going up for foreclosure must be advertised in the local paper.
  • Notice of Trustee Sale Letter- This is the 14 day rule. The trustee, the agent for the lender, typically the attorney conducting the sale, simply has to send you a letter advising you that on such and such date and time, in front of the court house steps, your home will be sold at foreclosure. A copy of the advertisement or a notice with the same information must be mailed to the homeowner at least 14 days before the foreclosure sale. That’s it. A lousy 14 day advance notice is all they have to give you. Most law firms will mail you this final letter by certified mail and regular mail, but are not required to personally serve you as would be the case if you were being sued in just about any other kind of situation.

The foreclosure sale ad must include anything required by the deed of trust and may include a legal description of the property, a street address and a tax map identification or general information about the property’s location. The notice must include the time, place and terms of sale. It must give the name of the trustee and the address and phone number of a person who will be able to respond to inquiries about the foreclosure sale. Granted, this letter is typically preceded by one other letter advising you that you are in default and the loan has been accelerated.

That’s it. That is all it takes to foreclose on a property in Virginia. Put an ad in the paper for 1 month, mail out a couple of letters and the bank now owns the house. Other draconian measures:

  • No right to reinstate loan prior to sale- You would think that if you could come up with the –for example- 7 months of unpaid mortgage debt plus the other junk fees tacked on top of that the day prior to the foreclosure sale date that you can stop the foreclosure of your home. But, in Virginia, in order to cure the default at this point you would have to win the lotto first since the bank can require you to pay off the loan in its entirety before they call off the foreclosure.
  • Deficiency judgments- Talk about adding insult to injury. Lenders may obtain deficiency judgments, without limits, in Virginia. If the house ends up selling for less than what is owed on the mortgage(s), the lender can pursue you for the balance. A separate lawsuit must be file with the court.
  • Redemption after sale- About half the states in the country give the homeowner a period of time after the foreclosure sale occurs to buy back their home, but not in Virginia. Once the hammer falls at auction the house is gone.

Va. Code Ann. §§ 55-59 provide the key foreclosure statutes in Virginia at this time.

 

Can you file for bankruptcy on your own?

Can you file for bankruptcy on your own?

You are having a hard time keeping up with your bills, money is tight, and the last thing you may want to do is to spend a couple of thousands of dollars on a bankruptcy lawyer. So you ask yourself, do I really have to have a bankruptcy attorney? Can I simply file my case on my own? After all, I have read all kinds of stuff on the internet and we are after all in the “DIY” (do it yourself) era are we not? The answer is yes, of course, you can file your bankruptcy case without the assistance of an attorney, but (you knew there was going to be a “but” right) you may quickly find out what people mean when they use the phrase “penny wise and pound foolish.” Case in point, see what one individual posted on www.lawguru.com a couple of weeks ago:

“how can I get a dismissal of a filed chapter 7. I have a car that is NOT mine but belongs to my son, but was titled in my name to get a better rate on insurance. Now the trustee wants to sell my sons car to pay my debts.” In other words, what they are saying is they filed a chapter 7 bankruptcy case and there is a car that is titled in their name, paid off, and worth –let’s just say- $12,000. The trustee is claiming that he is entitled to take possession of the car, sell it, and distribute the funds to their creditors.

So, how can you get a dismissal of a chapter 7 case? You cannot. Once a chapter 7 case is deemed to be an “asset case” a judge will not allow you to simply say “oops” and allow you to voluntarily dismiss the case. Once you are in it, you are in it!

Having said that, how would a bankruptcy lawyer deal with this dilemma? Well, a good Virginia bankruptcy attorney is of course intimately familiar with Virginia’s bankruptcy exemptions. Maybe it is just a matter of applying the $6,000.00 car exemption and utilizing 34-4 to protect the remaining equity in the car. And if the car is worth a bit more than the available bankruptcy exemptions then perhaps you purchase the car back and pay for the un-exempt portion. Or, if the car has a great deal of equity and is worth a lot then you may have to convert to a 13 and pay off the car over 5 years. Finally, if you are an experienced Virginia bankruptcy attorney you realize that you may be able to convince the trustee/court that the debtor –the person who filed for bankruptcy- has merely “bare legal title.” Meaning, you may be able to make the convincing argument that your client has title to the car in name only. If you can show that all the car payments were made by someone other than the person filing for bankruptcy and that this other person drove the car you may have a winning argument.

Moral of the story is: While you can certainly file for bankruptcy on your own, the question is do you really want to?!

 

 

Common bankruptcy terminology explained in plain English

This glossary of terms is designed to demystify the bankruptcy process and to provide a brief explanation of some of the most common terminology used in bankruptcy cases.

ASSET CASE– The term used in those rare instances where the chapter 7 trustee has determined that there are indeed some assets that the debtor owns which are not exempt and that can be sold in order to disburse money to the creditors.

ADMINISTER- A $3.00 word which means to sell. You might hear the chapter 7 trustee saying something to the effect of it appears that there may be some assets here which I wish to administer.

ABANDON- At the chapter 7 meeting of creditors you will typically hear a trustee say I am going to abandon that particular asset. As in, your house, cars, etc. have no equity and I have no intention of selling them. Meaning, your stuff is all yours. That’s typically what you will hear in chapter 7 cases.

AUTOMATIC STAY– When you file any type of bankruptcy case the automatic stay goes into effect. As in, an invisible “shield” goes up –sort to speak- which prevents virtually all creditors from employing any type of action in order to get money from you. So all pending lawsuits, garnishments, etc. must immediately cease.

BANKRUPTCY- As noted in the seminal Supreme Court case of Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934), it is the opportunity for the honest person to get a fresh start!

CHAPTER 20 BANKRUPTCY– The overlooked tactic of filing a chapter 13 bankruptcy shortly after obtaining a chapter 7 discharge. Who says you have to wait 8 years before you can file bankruptcy again?!

CRAMDOWN A.K.A. MOTION TO VALUE COLLATERAL– One of the advantages of a chapter 13 bankruptcy which allowes you to pay back your existing car loan based on the current value of the car instead of being stuck which your existing car loan. The interest rate can be greatly reduced as well.

CREDITORS- The people to whom you owe money.

CONFIRMATION OF THE PLAN- Another way of saying that your chapter 13 case and your proposed payment plan has been approved by the judge.

CONVERTING- The process of converting a bankruptcy cases from one type to another. Most commonly a motion to convert a case from a chapter 13 to a chapter 7 case will be filed with the court.

DOMESTIC SUPPORT OBLIGATION– Just a fancier way of saying alimony or child support. At the meeting of creditors you will be asked if you owe anyone money under a domestic support obligation.

DEBTOR- The individual filing for bankruptcy is referred to as the debtor.

DISCHARGE- The document from the court that essentially says your debts have been erased and you are no longer obligated to pay these pre-bankruptcy incurred debts. In a chapter 7 case it typically takes 100 days for the discharge order to come in.

EXEMPTIONS- The various federal or state laws that exist in every state in order to protect your most basic assets when filing for bankruptcy. For example, in Virginia there is a car exemption designed to protect up to $6,000.00 in equity in a vehicle upon filing for bankruptcy.

FRAUDULENT CONVEYANCE– If you transfer valuable assets out of your name such as cars or houses in anticipation of filing for bankruptcy in a few months you are risking being accused of fraud. Worst case scenario? The bankruptcy court denies your bankruptcy discharge. Ouch!

FEASABILITY TEST– In chapter 13 cases you have to be able to demonstrate to the court that the plan that you are proposing is feasible. In other words, you have enough of an income that will allow you to fund the plan-make your payment that is.

GARNISHMENT- the process utilized by creditors to take from your bank account or wages and one of the biggest reasons that lead people to file for bankruptcy.

HOMESTEAD DEED- The actual document that must be filed with the land records in the county where you reside in order to exempt such assets as your anticipated tax refund or money in your bank account upon filing for bankruptcy. The failure to timely file a homestead deed can result in the trustee taking your assets in a chapter 7 case.

HOUSEHOLD SIZE- Determining the appropriate people that are in your household size can make all the difference between qualifying or not qualifying for a chapter 7 bankruptcy.

INDIVIDUAL BANKRUPTCY FILING- If you are married you have the option of filing individually without your spouse or jointly with your spouse. Only married couples can file jointly. It is still unclear what effect the recent case Supreme Court Case of United States vs. Windsor will have on same sex couples…will they be able to file a joint chapter case just like a heterosexual couple in Virginia? Time will tell.

JUDGEMENTS– If you have been taken to court by a creditor then chances are there is a judgment against you. That is, the court has determined that you indeed legally owe the money. A bankruptcy discharge can make a judgment disappear.

KILOGRAM- Has nothing to do with bankruptcy. But, in case you were wondering, 2.2 pounds equals 1 kilogram.

LIEN STRIPPING– It has nothing to do with taking off your clothes. Rather, it is a tremendous tool that can be utilized only in chapter 13 cases. If your house is severely “upside-down” then you may be able to get rid of/strip your second mortgage or home equity line.

LIQUIDATION TEST– If you have a bunch of equity in your house that you cannot exempt then you will have to file a chapter 13 bankruptcy case. You will then have to pay at least as much in your chapter 13 case to your creditors as would be the case if a chapter 7 trustee were to administer the house in a chapter 7 case.

LIEN AVOIDANCE– If judgments have been entered against you and you own a home, then chances are those judgments have been recorded as liens against your home. Lien avoidance is the process of removing any judgment liens that have been attached to your home.

MOTION FOR RELIEF FROM THE AUTOMATIC STAY– The most utilized motion by creditors most typically in chapter 13 cases. If your fall behind on your mortgage payments after filing a chapter 13 bankruptcy case then the bank will file this motion and ask the court for permission to foreclose on your property despite the fact that you are in bankruptcy.

MEETING OF CREDITORS– A hearing that you have to attend whether your file a chapter 7 bankruptcy or a chapter 13 case. It really ought to be called the meeting with the trustee since in 95% of cases no creditors ever show up.

MEANS TEST- The mathematical “test” that has to be “passed” in order to qualify for a chapter 7 bankruptcy filing. In a chapter 13 cases this mathematical formula is critical in determining the extent of your payments to your unsecured creditors.

NO ASSET CASE– The vast majority of chapter 7 cases are determined to be no asset cases. Meaning, the chapter 7 trustee concludes that the person filing his/her bankruptcy case simply has no significant property that they can seize and sell for the benefit of the creditors.

OBJECTION TO PROOF OF CLAIM– In chapter 13 cases the debtor has the right to file a written objection with the bankruptcy court if they believe that a particular creditor(s) are not entitled to payment or that the amount of money demanded by that creditor is incorrect.

PRIORITY CREDITORS– Those creditors that are permitted to get paid ahead of secured creditors and unsecured creditors. The IRS and the former spouse owed child/spousal support is the most typical priority creditor that you will encounter in chapter 13 bankruptcy cases. They get paid first, prior to everyone else.

PROOF OF CLAIM– The “RSVP” to the party. The document that all creditors must timely file with the bankruptcy court if they wish to get paid in a chapter 13 case or in a chapter 7 asset case.

PRESUMPTION OF ABUSE– If you do not “pass” the means test then a presumption of abuse will arise. Meaning, the court will assume that allowing you to proceed with your chapter 7 bankruptcy case will be tantamount to you abusing the system.

PREFERENCES– Certain payments to creditors within the 90 days preceding your bankruptcy filing or even 1 year preceding the bankruptcy filing (if those payments were made to family members) may be deemed to be preferences and may “undone” by the chapter 7 trustee. The bankruptcy court does not like it when you prefer one creditor over another as you prepare to file for bankruptcy.

PROJECTED DISPOSALE INCOME– In chapter 13 cases the means test will be used to determine your projected disposable income which in turn determines the amount of money that you must pay your unsecured creditors during the 5 years that you are in bankruptcy.

PETITION- The first couple of pages that make up your bankruptcy filing. It includes such basic information such as your name, address, social security number, etc. These pages are  referred to as the bankruptcy petition.

REAFFIRMATION AGREEMENTS– An agreement that upon being executed states that you are once again personally liable on the loan. It is the equivalent of saying that “I am not including this debt in my bankruptcy.”

REJECTING LEASES– Don’t like you car lease or residential/commercial lease? You can file for bankruptcy and “reject the lease.” Another way of saying tearing up the contract that you previously executed and getting out of the lease.

REDEMPTION– An awesome tool that allows you in chapter 7 bankruptcy cases to pay off and obtain the title to your car based on the amount that the car is worth and NOT based on the amount you currently owe on the car.

SCHEDULES- The 50 or so pages that accompany the bankruptcy petition are known as the schedules.

SECURED CREDITORS– Those creditors whose loans are secured by collateral. The most notable secured lenders out there are banks handing out mortgages and car loans. Secured creditors are entitled to payment in full in a chapter 13 bankruptcy case so the distinction is very important.

SURRENDORED PROPERTY– In either type of bankruptcy you have the option of walking away from your mortgage, car loan, boat loan, etc. and in turn giving up the collateral. So, surrender is just another way of saying you are willing to give up the property that is acting as collateral for the loan.

STEP UP– Certain events like paying off a car loan during the life of your chapter 13 bankruptcy filing will trigger an increase in your plan payments. That increase is referred to as a step up.

TRUSTEE– In chapter 7 cases he/she is the person that determines if there are any assets that they can seize and sell for the benefit of the creditors. In chapter 13 cases, he/she is the person that evaluates your plan and determines whether you are paying enough to the unsecured creditors.

THE PLAN– Those set of documents that outline which creditors are going to get paid and to what extent in a chapter 13 bankruptcy case is called the plan. The goal is to get the plan confirmed by the judge.

TENANTS BY THE ENTIRETY PROPERTY– The concept that states that property jointly owned with a spouse and is typically titled in this fashion cannot be touched in or outside of bankruptcy in order to satisfy creditors belonging to just one spouse.

UNSECURED CREDITORS– The banks, hospitals and credit unions that give out credit cards, medical services, and personal loans, are referred to as unsecured creditors since their loans are not secured by any property. The unsecured creditors get paid nothing if you are filing a chapter 7 bankruptcy case, and typically a small percentage if you are filing a chapter 13 bankruptcy.

UNITED STATES TRUSTEE OFFICE– Part of the Department of Justice, it is this office that will be filing an objection to your chapter 7 case if they feel that you do not qualify for a chapter 7 bankruptcy discharge. Ultimately however, it is the judge who will decide.

WAGE ORDER– Once your chapter 13 bankruptcy plan is approved the court will issue a wage order which will command your employer to start removing X dollars out of your pay check and send it to the chapter 13 trustee so that those funds can be disbursed to your creditors.

 

 

 

I thought my mortgage and car payment was not part of the bankruptcy?!

I THOUGHT MY MORTGAGE AND CAR PAYMENT WAS NOT PART OF THE BANKRUPTCY?!

One of the most difficult and annoying things for people to understand when they file a chapter 7 bankruptcy case is that while they may be filing bankruptcy on the credit card debt, medical debt or some other personal loan, and not the mortgage or car loan, the bankruptcy law does not make that distinction. In other words, if you are filing a chapter 7 bankruptcy case your discharge will wipe out not just the credit card and medical debt, but also the mortgage and car loan. And that’s a good thing just so you know! When your case concludes virtually all of your debt on your credit report (exception being student loans) will state the words “included/discharged in bankruptcy” and will show a zero balance. That includes the mortgage and the car loan(s).

Does that mean that you can keep your house or car without paying the mortgage or making the car payments? No, of course not. Otherwise, I would be filing for bankruptcy myself tomorrow morning. If you want to keep your car or house you have to keep making the payments after bankruptcy. However, if for whatever reason you do not want to keep the house/car then at any time you can choose –so long as you do not sign a Reaffirmation Agreement- to stop paying for the house and/or car. At that point the bank can foreclose on the house or repossess the car, but they cannot come after you personally. This is an advantage that people outside of bankruptcy do not have. Another huge advantage is the fact that your $300,000 mortgage or $20,000 car loan is now being reported on your credit report as zero debt being owed. That does wonders for your debt to income ratio and ultimately your credit score. Nothing will make your credit score ascend faster than having 0 debt! That means you get to eat your cake and keep it too. As in, you get to keep the house or car even though the debt is not reported any longer on the credit report as would be the case had you not filed for bankruptcy.

As far as why the mortgage/car loan is showing “bankruptcy status” and why your statements are indicating zero owed the moment you file your bankruptcy case? The answer is as follows:  When you file your bankruptcy case all creditors are entitled to receive notice of your bankruptcy filing- whether you want to bankruptcy them or not, and whether you are behind or not on your payments is irrelevant.  Every bank that you owe money to is entitled to get notice of your filing. Moreover, in light of the automatic stay (the legal principle that states “I am in bankruptcy so do not even think about trying to collect money from me”) the creditors/banks send statements in such fashion and take the position that you “technically” do not owe them any money. Again, the reality is that if you want to keep the property you have to continue paying for it after you file your case. In this sense the bankruptcy has changed nothing. You pay you keep, you do not they take!