Archive for the ‘Bankruptcy News’ Category

There is much controversy in the Senate right now over a possible change to bankruptcy law in response to the current mortgage crisis. Currently bankruptcy judges can change the terms of certain kinds of debt such as credit cards and car loans in order to reduce the amount of debt owed and lower monthly payments. They can even make changes to mortgages on 2nd homes, vacation properties and investment properties, but they cannot change the terms of a mortgage on a primary residence. With so many people in danger of losing their homes to foreclosure, the Democrats are trying to push through a piece of legislation that would change that law and allow bankruptcy judges to change the terms of mortgages on primary residences as well in an effort to save those people from losing their homes. The supporters of this bill feel that lenders would make more of a voluntary effort to help struggling borrowers modify their loans in order to avoid allowing bankruptcy judges who are not knowledgeable in the mortgage industry to be able to modify the loans which would cost the lenders money.

As would be expected, lenders are opposed to the bill. They believe that if this piece of legislation is passed, there is a great potential for interest rates to rise again. It is also feared by other opposition that the lenders would start charging higher fees to cover the costs of loans that will never be paid in full. Neither of these results would do any good for the troubled economy.

The section of the bill that is causing the most amount of concern for the Republicans is a provision that sets up a $4 billion fund for lenders to buy up abandoned and foreclosed properties. This would help alleviate some of the lender’s losses and help the housing market recover some. It is being seen as a “bail out” though for the lenders and that is not sitting well with the opposition.

If the bill passes, it has been said that President Bush will veto it, but that Democrats would try to push it through the senate with a majority vote.

Fair Isaac, the company that currently calculates credit scores, is rolling out a new scoring model this year called FICO 08 which is supposed to be more accurate in determining how much of a credit risk people are. The scores will still range from 300-850. FICO 08 will look at the same factors as before: types of credit, length of credit history, payment history, number of credit inquiries, amount of indebtedness, etc. But it will also take into account a few more factors and put more emphasis on some of the current factors.

People who have “thin” credit files, are close to their available credit limits, or do not have a variety of different types of credit (such as mortgages, car loans, installment loans, etc.) will see lower scores.

Another change will be the way it takes into account delinquent accounts. It will be more forgiving of one or two late payments, but it will hurt a person’s score even more if they have accounts that are more than 90 days delinquent or multiple delinquent accounts.

One of the biggest changes that will affect the most people is that “piggyback” accounts will no longer help a person’s credit. Over the past several years, as a way to improve their credit, people with bad credit or little credit have been adding themselves as authorized users on credit accounts of people with good credit in order to boost their credit scores. FICO 08 will no longer take into account those types of accounts. Spouses may be the people who are hurt the most by this change. Many spouses have credit accounts that are in both partner’s names. One person is the primary user and the other is an authorized user. The credit score of the person who is the authorized user will no longer take those accounts into consideration.

Experian has already begun to use FICO 08. Transunion and Equifax are expected to start using it later this year.

Ever wondered why and how the new bankruptcy law came into place and what triggered the government to inflict harsher guidelines upon those wishing to file? Many people have pondered these same questions, especially since it seems ironic to make filing for bankruptcy financially harder on those who are already cash strapped in the first place.

Recent studies are now showing that the new bankruptcy law might have been instituted without probable cause. Supporters of the new law believed that many of the people filing for bankruptcy were actually able to pay off their debt. It was believed that filers were spending massive amounts of cash and then going bankrupt to avoid paying their bills.

But now that it is becoming clear that this just isn’t the case, people are starting to wonder if there ever was any justification to institute the new law in the first place. Unfortunately, it’s not up to us to decide either way, but the truth speaks for itself. The majority of people that file are found to truly be unable to pay of their debt by the new mandatory credit counselors they must hire.

As for now, the new law will remain in place and so will the harsher guidelines. This hasn’t stopped people from filing although. What it has done is make people consider all other options before filing for bankruptcy (which should have been done anyway) and it has brought a greater financial awareness to anyone wanting to file. The government may not have been able to handle the truth about the American public’s bank accounts, but the new law hasn’t stopped many from filing for bankruptcy regardless.

We all know just how important it is for us to know our credit score, but have you ever heard of your bankruptcy risk score? Probably not, because as of right now, consumers do not have access to their BRS.

The reason why we should want to have access to our BRS is due to the simple fact that knowledge is power. We need to know if we are at risk and if the information used to compile our score is correct or not.

Credit bureaus say that consumers don’t need to know their scores because the information is more for lenders than for anyone else. But, if that information could help a consumer to get back on track financially, then that info would be very helpful in the long run.

There are no plans to release this information to consumers as of yet, but chances are your BRS is calculated using much of the information in your credit history. So pay your bills on time each month and always check the info in your credit report to make sure it’s accurate.

I bet you never knew there was such a thing, right? Well, before you go running to the mall with your credit card in hand, read about the four types of good debt and how they can help your financial future to become brighter. And sorry to disappoint you, but maxing out your credit card on new clothes isn’t one of them!

When it comes to good debt, consider what your needs and wants are. You need to get an education and you need medical care. You don’t need a new designer bag or a flat screen TV. Recognizing the difference between good purchases and bad purchases will help you understand what the definition of good debt truly is.

A student loan- although it may seem overwhelming once acquired- is a good type of debt to accrue. Why? Because it contributes to your future success. It will increase your level of education and provide you with the means to earn a larger income in the future.

A mortgage loan will allow you to build home equity and net worth- which will help you to make larger purchases later for things like vacations, a new vehicle or remodeling.

Medical bills are good debt because your health always comes first. Never sacrifice your health for the sake of saving a few dollars.

And last but not least, any business debt you acquire is good debt because it is helping to secure your future financial success.

If you are the type of consumer that struggles from month to month just to meet your monthly minimum credit card payment, there is some bad news lurking on your horizon. By the end of late March, credit card companies are going to be almost doubling your monthly payments. This is all thanks to the Abuse Prevention and Consumer Protection Act of 2005, but if you look at it realistically, it was created with your best interests in mind.

Think about it… by increasing your monthly payments, you will also be forced to pay off your debt much faster than you would have otherwise. Of course, the downside to this is that many people can’t afford more than their monthly minimum, which will make owning a credit card unaffordable.

Now that you know what the end of March will bring, prepare for it. Figure out your finances and devise a plan that will allow you to keep your credit card and deal with the minimum increase. Remember, it’s best to always pay off the balance on your card each month and if you never charge more than you can afford, the new minimum won’t even matter.

What follows is a cautionary tale about excessive spending. If you don’t budget your finances and start saving now, you could end up penniless and alone, living in an exact replica of the Starship Voyager. Okay, well maybe this is an extreme case, but let it serve as a reminder to us all about the importance of saving our money instead of using it to fund silly dreams.

At some point in our lives, we’ve all wanted to buy something that could be deemed crazy. This is a true fact, and if you’re being honest, it simply can’t be denied. Take me for example- I’ve always wanted to own a pet monkey, but deep down I knew that just wouldn’t be a good idea. Maybe you’ve always been tempted to blow your savings on a mint condition ’69 Mustang or spend every last penny you have on plastic surgery. Whatever your dream is, it’s best to stop and think long and hard before you act upon it.

Apparently, Tony Alleyne, a resident of Hinckley, Leicestershire and a lifelong Star Trek fan, didn’t consider the ramifications of turning his London flat into a mirror image of the Starship Voyager. But $71,000, touch-panel blue lighting, porthole windows and a command console later, this die hard Trekkie has filed for bankruptcy.

Alleyne has amassed debt as high as $392,000 to help create his fantasy world, complete with vertical lights that allow him to be “beamed up” and a transporter room. One might question if at any point in the construction of his “ship,” did he wonder if getting two loans and maxing out fourteen credit cards wasn’t the smartest thing in the world to do.

I guess there is no use speculating about that now, because regardless, Tony Alleyne is deep in debt and bankruptcy has come knocking at the door of his very own Starship Voyager. Selling his ship might help, but really, is there anyone out there that would buy it?

The moral of the story is this: if you want to live long and prosper, you have to be smart about your money. Save. Budget. Think. You may love Grey’s Anatomy, but is there really a need to transform your home into the mirror image of Seattle Grace Hospital? Aren’t there better things you could be doing with your money? Consider the consequences before you act and both you and your finances will benefit in the long run.

We’ve all heard about people keeping their palatial estates while discharging their debts through bankruptcy. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which went into effect two weeks ago, might change that.

Under the new law, an individual must obtain counseling from an approved nonprofit agency before filing for bankruptcy. The client also must produce a certificate verifying that he or she has completed counseling. In addition, someone seeking bankruptcy protection will have to complete a personal financial management education course before the court will discharge debts.

More from Bankruptcy Amendment Aims at Abuse of Debt Program

Filing blitz, more hearings mean all cases likely to proceed slowly

In the three weeks since a flood of filings inundated U.S. bankruptcy courts in advance of a law making it tougher to clear debts, at least two consequences have become clear: Creditors and debtors who want a quick discharge of their cases are likely to be disappointed, and banks and credit-card issuers are in for a short-term financial hit.

The deluge of bankruptcy filings ahead of the Oct. 17 law has kept judges at U.S. Bankruptcy Court in Columbus scrambling to keep up while trying to establish precedent that others can follow in implementing the untested law.

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Thousands rush to avoid new bankruptcy laws, jamming court dockets for months.

Thousands of debt-burdened Kentuckians rushed to declare bankruptcy before midnight Oct. 16, when the nation’s bankruptcy laws underwent a dramatic change.

They beat the deadline, but lost the race.

The sheer number of new filings means the average case will take several weeks or months longer than usual to be resolved, court officials say.

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