Archive for the ‘Bankruptcy Tips’ Category

This question has a number of variables.

1) What type of Bankruptcy did you file?

Chapter 7: If you filed a Chapter 7 Bankruptcy, once you are discharged there are no limitation of new purchases or new credit. If you can find a lender to lend you the money, there is no trustee approval required. There is no limitation for receiving a car loan based on a discharged Chapter 7.

Chapter 13: If you are currently making your payments under a Chapter 13 Bankruptcy plan, you will need trustee approval to get a new loan. This is not typically a problem if you are current and the new payment will not have a negative impact on your ability to pay. Once you are discharged, you will be able to receive a new car loan with no trustee approval and no limitation caused by the bankruptcy.

2) What is your credit score?

Most automobile lenders do not have specific limitation on granting a loan based upon a previous bankruptcy. When they are reviewing your application your credit score will have paramount importance. Here are some ways to rebuild credit and improve your score after bankruptcy. The short version is, make sure all discharged debts so as discharged on your credit report. Then borrow money you can afford to repay (secured credit cards, CD secured credit union loans, etc.) then repay them without any lates. Though it seems obvious, the higher your credit score, the less the bankruptcy will matter. Focus on rebuilding your score and it will make borrowing new money easier.

3) Are you buying from a new car dealer, used car dealer, or a private party?

New Car Dealer: Most new car dealers have manufacturer subsidized financing options. These programs can be very effective in receiving new financing at reasonable rates. Ford has had a program to allow you to receive a new car lease immediately after bankruptcy. You will pay more for a new car than a used car. However, with the remarkably lower rate of interest you can have a lower payment on the more expensive car. Shop carefully and be clear on all the terms of the new loan.

Used Car Dealer: Many used car dealers have “Buy Here, Pay Here” programs. These are dealer financed car loans. You will pay a higher sticker price and a higher rate of interest than a traditional car loan. However, since these loans are made from the dealer directly to the buyer, most traditional underwriting standards are ignored. If the dealer likes you as a credit risk on a personal basis, then you will likely receive the loan. The huge downside to the private dealer loans is the fact that many do not report to credit bureaus. You will receive the loan and the car, but it will not help you rebuild your credit score. Used car dealers also have access to more traditional lenders with loan products designed for low credit score borrowers. These programs will be very expensive, but will report to credit bureaus. Be sure to not borrow more than you are able to afford since you want to be rebuilding your credit, not digging the same hole you just got out of with the bankruptcy.

4) Are you making a down payment?

Most automobile finance programs are based upon the loan amount versus the value of the vehicle. Just like a home mortgage, if you put your own cash into the deal you are more likely to qualify at a better rate of interest. The zero down, zero drive off type deals are only available for the very best credit scores. When you go car shopping, plan to put 20% down and you will have a better chance of getting the car you want at a payment you can afford.

So the bottom line, depending on the type of bankruptcy you filed, how good your score is, where you buy and how much you have for a down payment, you can buy a car immediately after discharge with no problem.

There are many measures to determine if you qualify for bankruptcy. With the implementation of the changes in 2005 there are asset limitations, debt limitations, and income limitations. If you qualify for bankruptcy under all the new tests you may want to consider if you should file just because you can.

Bankruptcy will have a significant impact on your credit. Credit is used for many things beyond just borrowing money. Employers, future spouses, business partners, and even law enforcement agencies look at your credit. A bankruptcy on your credit report could have a number of negative connotations for people that use it to evaluate you.

When considering filing bankruptcy most people are looking to get out from under an unsupportable amount of debt. The monthly costs and the creditor calls make it hard to function. There is significant stress associated with a high debt load. This debt has usually become unsupportable due to some life circumstances, which leads to even more stress. Whether this was a loss of income, the loss of a spouse, large medical debt from an illness or accident, or some other unforeseeable life event the result is the same–More monthly expense than income.

Before you file bankruptcy, pause and look at where you would like to be at the end. What debt will you keep? Where will you live? What car will you have? What will your income and expenses look like after discharge? Assuming that post discharge you will be able to afford to live, what extra money will you have? This amount is what we have to work with when trying to avoid bankruptcy. If you can take that extra few hundred or few thousand dollars and use it over three years to satisfy your current creditors, then you may be able to avoid bankruptcy. If, however, there is too much debt or not enough money left over, then bankruptcy will likely be the only option.

The best way to avoid bankruptcy is to bring these two numbers, the extra income and the amount of debt to be serviced, into a ratio that is manageable. The following five techniques are designed to make that happen.

1. Credit Counseling: This is a service that will work with your creditors to establish a payment plan outside of a judicial process. It will impact your credit. Many lenders will not extend you new credit until you have satisfied old creditors under the payment plan established between you and your existing creditors. However, the collection calls will stop, interest rates will likely be lower and late fees will stop compounding. These services typically charge fees for their services. These fees will almost always be substantially less than the compounding interest and penalties.

2. Loan Modification: A leading cause of bankruptcy is mortgage payments that have adjusted beyond the ability for borrowers to pay. This causes a cascade of defaults on other debts and ultimately bankruptcy. A bankruptcy will not change the terms of a first mortgage on your home. You will have two choices. Keep the house and the existing mortgage payment, or you can turn the house over to the bank and move out. Many people are able to avoid bankruptcy if they can get the payment on their house lowered to a more affordable level. This process is referred to as loan modification. Loan modification can be frustrating and complicated. There are services that will work with you and your mortgage company to negotiate a more affordable interest rate and loan term. Your mortgage company also likely has a department staffed with people trained to help you. It is usually in your mortgage companies best interest to keep you in the home with an affordable payment rather than foreclose.

3. Direct Negotiation for Settlement: Every single one of your unsecured creditors will likely receive nothing if you file bankruptcy. This reality will cause them to be willing to settle now for less than you owe. This amount will likely be a small fraction of the debt. Credit cards have been known to settle for 20-30% of the amount owed. If you can negotiate with all of your creditors and have a source for the money to pay them off, you will likely be able to avoid bankruptcy entirely. The important phrase to remember here is, “I want to pay less”. If the amounts the creditors are offering are not affordable, your fall back option of bankruptcy is always available. Do not give up based on this first number they offer.

4. Do Nothing: Many elderly people who live on a fixed income and have large hospital bills maybe better off doing nothing. Bankruptcy can be expensive and if the medical issues are likely to recur this is a short term solution to a long term problem. There is very little that a collection company will realistically do to affect your daily life. Learn to screen your calls and ignore them. Use the money you save on the bankruptcy to spoil your grandkids.

5. Payment Plan(s): If you do not qualify for a chapter 7 bankruptcy and will end up with a payment plan from Chapter 13, consider just working out a payment plan for the next 5 years directly with your creditors. You will avoid a bankruptcy and have the same net affect. Remember to get these plans in writing from your creditors, and then be sure to honor you terms. In all likelihood your credit will be turned around inside of 2 years.

If you can use these options to get your debt and income ratios into an affordable place, then you will be able to avoid a bankruptcy and this can be a very good thing.

Here are 5 more bankruptcy terms you should be familiar with if you are thinking of filing for bankruptcy.

Estate – The total of all of the property owned by a person who has died

Exempt Property – Possessions that a person may keep when they file for Chapter 7 bankruptcy or lose a lawsuit to a creditor. Typically, these items are clothing, vehicles worth less than $2500, household furnishings and Social Security payments.

Foreclosure – When the mortgage on a property is in default, the property is sold to raise money to pay the unpaid balance of the loan to the creditor. The person who has defaulted on the loan is forced to leave the property

Lien – A legal claim against a property made by a creditor because of a debt owed by the property owner. The lien must be paid when the property is sold. There are liens called security interests which the property owner agrees to in order to guarantee repayment of a loan they have taken out such as a home, auto or personal loan. There are also nonconsensual loans to which the property owner did not agree such as judgement liens, tax liens and mechanical liens.

Nonexempt property – Possessions that a person may lose when they file for Chapter 7 bankruptcy or lose a lawsuit to a creditor. These are typically items that are valuable enough to satisfy debts such as vehicles that are paid for, valuable furs, electronic equipment, and the equity in your home.

When you are filing for bankruptcy, there are a few terms you should understand. I’ll cover 5 in this post and 10 more in subsequent posts.

Assignee – A person or company to whom property rights are transferred. For example, an assignee may take over the lease on an apartment if the original tenant wants to leave before his lease is up. The assignee will assume all the rights to the property as the tenant including the responsibility to pay the rent and utilities, but would not be the one legally responsible if they failed to keep up their end of the bargain. The original tenant is still the responsible party legally.

Beneficiary – A person or group who is entitled to receive benefits from a legal device such as a will, trust or an insurance policy. A beneficiary can also be the person who receives the benefits of a contract between two other people.

Cash Surrender Value – On the voluntary termination of an insurance policy, the amount of money available before the policy’s benefits become payable. In other words, the amount of money you would get if you sold the policy back to the insurance company.

Co Signer – A person who signs a loan document, lease or credit application as a secondary borrower agreeing to be responsible for the debt if the primary borrower does not make the agreed payments.

ERISA – The Employee Retirement Income Security Act is a federal law that regulates private pension plans that are supplementing Social Security. ERISA requires employers to provide employees with full information regarding their pension rights, sets minimum standards for these plans, ensures that the administration of these funds is clear to the employees, and provides some protection for workers if the plan cannot pay the benefits that they were entitled to.

You’ve decided to file for bankruptcy. Now you are thinking that you could save a little money by representing yourself in court. Is that really such a great idea? There are many books out there that explain how to file for bankruptcy. You could probably fumble your way through it, but it’s not in your best interests to try to represent yourself. You are trying to get relief from debts and you will want to make sure you have followed all of the laws and gone through all of the proper procedures to fully receive the relief you are looking for and ensure that it is done in a timely manner. Every state and even every court within those states has there own requirements, interpretations of laws, and exemptions and these are changing constantly. A good lawyer who is familiar with bankruptcy in your state should know what these differences are.

If you decide to go ahead and represent yourself, remember that you will need to spend a lot of time working on your case to ensure that you do everything correctly. Spend time at the library reading books about bankruptcy and time at the courts to familiarize yourself with the process and the small quirks that every different court may have.

Some people file for bankruptcy in an effort to save their home from going into foreclosure. But does that work? In some cases it will, but in some cases it won’t. If you are filing for Chapter 13 bankruptcy, there is a good chance that you will be able to keep your home because you will be required to continue making mortgage payments as well as paying back the payments you have missed. But if you are filing for Chapter 7 bankruptcy, filing may not help to save your home. The biggest determining factor is based on how much equity you have in your house and whether that equity amount is within the allowed exemption amount.

The first thing you must do is figure out how much equity you have in your home. Once you find out how much your home is currently worth, subtract the amount you still owe from that amount. That will tell you the amount of equity you have. For example, if your house is worth $200,000 and you have $185,000 worth of mortgage loans still owed, your equity would be $15,000.

The current federal homestead exemption is $18,450. Some states have their own homestead exemption amounts as well. So you will want to know what your states’ exemption is as it may be more or less than the federal exemption. If you have less than $18,450 in equity in your home, you may be able to keep it. But if you owe more than the exemption amount, you may be at risk of losing your home.

You may still be able to keep your home if you can pay the difference between the exemption amount and the equity you have from sources other than your bankruptcy estate (chances are you cannot do that though if you are filing for bankruptcy). If the cost of selling your home would be more than the nonexempt equity amount the trustee of your case may allow you to keep your home as well.

Note that there are some types of dwellings that do not qualify for the homestead exemption in certain states such as mobile homes and coops. And some states base their exemption on the lot size of your property.

Before deciding to file for bankruptcy to try to save your home, become familiar with your states’ exemptions to try and determine if filing for bankruptcy will allow you to save your home.

Once you file for bankruptcy, an automatic stay is immediately put into place. An automatic stay temporarily stops your creditors from being able to take any action against your income or property. It also freezes any lawsuits pending against you.

There are a few different kinds of lawsuits or actions by creditors that an automatic stay will not stop. It will not stop any criminal proceedings or any attempts to collect alimony or maintenance or support from property that you acquired after filing for bankruptcy or exempt property.

If you file for Chapter 7 bankruptcy, friends or relatives who have co-signed for a loan are not protected by the stay. They can still be contacted by the creditors to collect the full amount due. If you file for Chapter 13 bankruptcy, the stay may protect your co-signers if they cannot benefit from the debt proceeds, the debt was not incurred in the ordinary course of business or the debt is a consumer debt.

Your creditors can file for a Motion for Relief from Stay which would exempt them from the stay and make it so they still have the ability to collect the debt. They may do this if they feel that the property securing your debt is at risk or depreciating quickly or if there is a consensual lien against your home and you are unable to pay the mortgage payments to pay off the debt. You are allowed to file an Objection to their application for Relief from Stay.

Note that due to recent changes in bankruptcy laws, landlords are still able to pursue eviction even if a stay is in place.

If you are thinking about filing for bankruptcy, it is important to examine all of your debts and figure out if they are secured or unsecured debts. It’s important to know this information because each type of debt is treated differently depending on which bankruptcy chapter you file under. Not all debts are removed just because you filed for bankruptcy.

Secured debts are debts that are linked to some type of property that you own securing payment for the creditor by giving them the property if you default . For example, mortgages are secured debts because if you default on the loan, the bank can claim your house. Other examples of secured debts are auto loans, furniture loans, and computer loans.

One type of secured loan is a nonconsensual lien where a 3rd party has legally placed a lien against your property because of nonpayment of your debts to them. For example, if you owed taxes to the IRS, they could put a lien against your property meaning that you could not sell or transfer the property without paying your debt to them first. You could also have a lien put against your property if you hired a contractor to add a room on to your house and then chose not to pay them. They would have the right to legally put a lien against your property.

Unsecured debts are debts such as credit cards and cash advances where there is no collateral if you default on the loan. Student loans, medical bills, lawyer fees, rent and/or utility payments, and health club memberships are a few other examples of loans that are generally unsecured.

Note that if you are required to sign a security agreement when signing up for a new credit card, you should read the terms carefully. Not all credit cards are unsecured, and you could be signing an agreement that your property will be used as collateral, therefore securing the loan.

If you can’t pay your bills and the letters are piling up in your mailbox, the most important thing to do in this situation is to stop ignoring them. Letting your bills pile up isn’t going to solve anything…in fact, it will eventually ruin your credit. But, before you’re turned over to a collection agency, there are a few things you can do.
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If you are in debt and worried that bankruptcy is just around the corner, consider enlisting the help of your local credit union. Credit unions are there for just this reason…they help their members get out of debt and back on track financially. So before you take that big step of filing for bankruptcy, talk to a credit union and see what they can do for you.

You will be assigned a financial manager and this person will be the one that gives you financial advice. They will make sure that all your bills are paid through the credit union and a savings account will be set up for any extras that you need.

Depending on how large your debt is, your financial manager might give you a debit card that has a limit on it. You can use this card anywhere, but when you reach a certain amount, you won’t be allowed to purchase anything else. This will keep you from overspending the money you should be saving.

All of your bills will be paid by the credit union…meaning you just have to make the money and your financial manager will be the one that gets it to the different creditors.

To locate a credit union in your area, check out your phone book or do a search online. You can also ask for recommendations from friends and family to see if they know of a good credit union for you to join.

Bankruptcy isn’t the end of the world, but it’s also something you shouldn’t take lightly. Do whatever you can to try and improve your financial situation before you decide to file for bankruptcy, including joining a credit union. It’s worth a try and it just might turn things around for you financially!