Month: August 2019

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Don’t “Cosign” Your Good Credit Away

So, you’ve gone and done it.  You didn’t listen when we told you not to do it.  You said to yourself, it’s OK, I know my brother won’t skip out on this loan and leave me holding the bag.  Well, you were wrong and he did. Not only that but the truck loan he convinced you to cosign on was just wrecked and your brother also didn’t have insurance.  You’ve got yourself in a mess. Here’s what happens to your credit now.

Your brother was late with his payment or he’s skipped one entirely.  This is a big red flag. It’s also a big red flag to the credit ratings companies.  Your credit score is going to get dinged, probably to the tune of 20-30 points. Honestly, even if your brother doesn’t miss his payments you’re still going to have credit problems.  

One of the thing credit ratings companies look at is something called your Debt to Income Ratio.  This is a measurement of how your income stacks up to your total debt load.  Lets say your monthly income is $10,000 and your monthly payments on all your debts add up to $6,000.  That’s a Debt to Income ratio of 60% and you’re now considered high risk. This loan you’ve cosigned with your Brother is factoring into that DTI of 60% and that’s hurting your credit score and your ability to get new loans at the best interest rates, or at all.  So your credit is taking a hit for your brother and you don’t even get the benefits of having something to show for it.

OK, so back to the issue at hand.  You’ve cosigned and now your on the hook.  Here’s the best ways to avoid massive hits to your credit or the possibility of ending up having to file bankruptcy.  First things first, monitor the borrower to make sure that their payments are on time and in full. This may mean you have to call them every month before the due date to gently remind them that the payment is due and make sure that they actually have the cash to cover that payment.  This is a hassle, and why we told you not to cosign to begin with. This will most likely pay off for you though because it will hopefully keep you from finding out the hard way (like nasty calls from bill collectors) that your brother hasn’t been making his payments and keep him from damaging your credit for years to come.

The next thing you should do is assume that your brother won’t be able to make his payment at some point and that you’ll occasionally have to step in to make the payment in order to keep your good credit score.  After you sign the loan you need to open up a separate savings account and place in that account enough money to cover payments for at least 6 months worth of payments. By doing this, you have a cushion built up in the event that your brother does what the lender thinks they’re going to do, quit paying the loan.  This also protects you in the event that your brother absconds with the truck. It’ll give you enough liquidity to call the lender and try to work out a deal. It’ll still hurt your credit but it hopefully won’t drive you into bankruptcy.

If you were convinced to cosign and now find yourself in financial trouble because of that loan, don’t worry.  We’ve given you a pretty hard time here today but in all honesty, people cosign all the time and it isn’t something that can’t be fixed.  The attorneys at Harmon and Gorove have the ability to make these issues go away using the tools provided in the U.S. Bankruptcy Code. Our attorney have decades of experience in handling cases like this and we are willing and able to help you in your time of need.  Contact us today to schedule your free, no obligation consultation with one of our attorneys.  

Your Cosigner filed Bankruptcy, What Now?

So often when someone needs to make a large purchase they must take out a loan.  The vast majority of us, myself included, have to incur debt to make these large purchases.  For many of us, getting this loan is going to require a cosigner. A cosigner is an additional person (besides you) that will agree to be liable for the debt in the event that you default on the loan and stop making payments.  The cosigner, just like you, is expected to pay back the loan in full if the other part can’t or won’t. What happens though, when your co-signer files bankruptcy? How is that going to impact your role as the primary borrower?

The best way to explain this situation is to give you an example.  Becky is looking to buy herself a new boat. Becky’s credit isn’t good enough to get the loan for the boat without a cosigner.  Becky’s cousin, Tammy agrees to be a cosigner on the loan but won’t be listed on the title as an owner of the boat. A few months later, Tammy has to file for bankruptcy and through the bankruptcy process, Tammy is remove from the loan and no longer required to pay it back.  You ask, what happens to Becky and her boat now?

Becky still has to pay back the loan.  As the primary borrower, she still owes the balance of the loan.  If Becky pays the loan back in full, the boat is hers, free and clear.  The only issue with being the primary borrower and the cosigner in a finance contract like this is that eventually the property will be titled in the primary borrower’s name.  Issues can occasionally arise if the finance company declares the loan in default due to the cosigner’s bankruptcy but these can usually be remedied by refinancing the loan in solely into the name of the primary borrower.  This can even result in lower payments for the primary borrower.

Additionally, Tammy’s bankruptcy shouldn’t show up on Becky’s credit.  Occasionally, situations arise where this is reported to credit bureaus but they can usually be resolved by filing a dispute letter with the three credit bureaus. Our advice is usually this: don’t cosign.  If you can’t afford to buy something using your own credit, maybe you need to explore less expensive options.

If you find yourself in financial trouble due to cosigning a loan with someone else, contact the attorneys at Harmon and Gorove today to see how we can help mitigate the damage of cosigning a loan.  

Cosigning is ALWAYS a Bad Idea

We understand how hard it is to say no, especially to a friend or family member.  Let me say this loud and clear, when a family member of a friend asks about cosigning a loan for them, RUN FOR THE HILLS! JUST SAY NO! DO NOT UNDER ANY CIRCUMSTANCES SIGN THAT LOAN!

No matter how sure you are that they won’t default on the loan, you may even feel it in your soul, DON’T DO IT.  If a lender is asking for a cosigner, there’s a good reason. It’s because they believe that the primary borrower won’t be able to make their financial obligations.  More often than not, the lender is right.

When it comes to cosigning, you’re being asked to guarantee a debt.  If the primary borrower doesn’t repay the debt, you’re on the hook for the debt and the creditor WILL come after you. You’ll be on the hook for late fees, collection costs, attorneys fees and the principal balance of the loan.  If the debt goes into default it WILL show up on your credit report. The bottom line is, cosigning is always a bad idea.

Cosigning is always a bad idea.  Have I made myself clear up to this point? Cosigning a debt puts you in the worst possible situation.  You receive no benefit from the loan you’re cosigning. You aren’t getting a student loan to improve your education, you’re not getting a house to live in and build equity in, you’re not getting that flashy new car to ride around town in. You’re just on the hook for all of it.  You can have you bank accounts and assets seized, your paycheck garnished, you could be subject to litigation and you could ultimately end up in bankruptcy.

We understand that it’s difficult to refuse to help someone you love.  Telling friends or family members no is one of the toughest things you can do. However, it may be the best thing you can do for your relationship.  Think about what your relationship will be like if your friend or family member defaults on the loan or even just misses a payment. That’s going to show up on your credit at a minimum and will likely bring your score down 20 or more points.  The damage that cosigning can do to relationships can not be understated. You’ll be left with a loan and a relationship that will be severely damaged from here forward.

If you’ve cosigned a loan with someone who has missed payments or defaulted on a loan completely and you find yourself on the hook for their mistakes the attorneys at Harmon and Gorove can help.  We are experts in dealing with these kinds of issues through the bankruptcy code.  Contact us today for a free, no obligation consultation about how we can help you get out from under these debts and get your life back.

How to Recover from Bankruptcy

Dead end roads, dead end jobs, dead end relationships.  All these are good examples of things that can truly be a dead end.  Notice, however, how the word Bankruptcy was NEVER mentioned as a dead end.  Quite the contrary, Bankruptcy can be a fantastic new beginning that can give you a fresh perspective and fresh start on your road to financial success. Bankruptcy allows you the kind of fresh start you need after a run of bad luck or a series of bad decisions.  By using these mistakes and learning from your bad luck, you can have a great deal of success after bankruptcy. Below, I list how you can successfully recover after bankruptcy.

 

  1. First things first, you MUST learn from your mistakes and misfortunes.  It is important to identify what happened and what caused you to file bankruptcy in the first place.  Was it bad choice, a spate of ill health, a run of bad luck or just plain stupidity. The decision to file bankruptcy was hard enough and let’s be honest.  You probably don’t want to be back here again. In order to avoid this problem in the future, you’ve got to figure out how you got here in the first place.
  2. After you identify your mistakes the next thing you’ve got to do is to plan for the future.  You need to create a budget based on what you can ACTUALLY AFFORD based on your income. Making this budget and sticking to it will lead you to a lifetime of financial success and keep you out of our office in the future.
  3. Once you’ve made plans, the next thing you need to do is set some goals.  Where do you want to be in 1 month, 6 months, 1 year, 5 years or a decade? You need to set goals and work them into your budget.  Such goals should include an emergency savings fund. An emergency cushion should be at least 6 months worth of your expenses in the event you have a job loss or experience medical problems in the future.  
  4. Once you’ve set up goals, you need to work on re-establishing your credit.  The only caveat to this is that it must be done SLOWLY AND DELIBERATELY. You can start out by rebuilding your credit slowly but getting a credit card and using it for a deliberate purpose.  Only buying certain things and ALWAYS paying it off at the beginning of the month. Over time this will allow your credit score to recover once you’ve shown your responsible and able to pay off your debts each month.  
  5. Finally, it’s always best to have a positive attitude.  Bankruptcy can be stressful (although we try our best to ease that stress) and cause a lost of difficulty in life. It is, however, important to focus on the positive aspects of filing bankruptcy. If you let this process continue to kick you while you’re down, you won’t be able to complete the other 4 steps to recovery.  

 

A significant majority of people come out of bankruptcy and find themselves more successful and better prepared for the financial road ahead.  If you feel that bankruptcy might be able to help you improve your financial situation please contact us for a free, no obligation consultation so we can show you just how we can help.  The attorneys at Harmon and Gorove have decades of experience in helping people get back on their feet, recover from financial trouble and achieve their goals.  We look forward to helping you!

Protecting Assets From Creditors

Look, we all get it. When we get scared we hide.  It’s a natural reaction to trouble to take the things we value and try to keep them safe. The same thing goes when people you owe money to come calling.  You think about how you can keep those things you’ve worked hard for and value in your possession. Protecting Assets from creditors becomes a top priority.

One of the first reactions is to transfer ownership of your car or house or other items of value you have laying around the house.  You may think about giving certain things away to friends or family. In the end, you’d rather someone you love have it instead of it going to some greedy creditor.  

The only problem with protecting assets this way is that it’s illegal.

People who receive the fraudulent conveyance often get sued by someone, whether its a creditor or a trustee.  These types of transfers have been illegal for at least the last 200 years.  You simply can’t give away your wealth when you owe money to other people. The law is the same whether it’s at the state level or in the bankruptcy code.  Gifts and/or fraudulent conveyances are not effective tools you can use to put your assets beyond the reach of creditors. If you are trying to fraudulently transfer assets, all you’re doing is setting the recipient up to be sued.

You can sell if the price is right.

What all this DOESN’T mean is you can’t sell your assets, it just means that you have to actually sell them for what they’re worth.  For instance, if you have a 2 carat diamond ring, you can’t sell it to your friend Cindy for $50 and if you’re driving a Rolls Royce, you can’t sell it to your Aunt Jean for $1,000.  You have to sell the items for what they’re worth, otherwise it raises serious suspicion. If you sell these items or you fraudulently convey property to someone else, the trustee is allowed to void that sale via a lawsuit.  Generally speaking, the trustee has a period of time called a lookback. Generally that period of time is about 2 years. If you transfer items out of your name during that time period the trustee can sue the person who received your assets and get them back to use to satisfy your debts.


Another problem that can arise in transferring property in a fraudulent way is that you can run afoul of the bankruptcy code.  In 11 U.S.C. 727 the bankruptcy court is allowed to DENY discharge if they find that you made a fraudulent conveyance.  This means you just paid all this money and did all this work and you’re going to get NOTHING in return.

The best way to keep your assets is by filing a Chapter 13 Bankruptcy.  You should always resist the urge to hide your assets. The United States Trustee has a great deal of power to look back through your finances through different types of hearings and examinations.  You should ALWAYS consult a competent bankruptcy attorney to find out what your options are and what property is exempt from the trustee’s reach in your bankruptcy. If you have assets with a value that exceeds your exemptions, you should consider a Chapter 13 Bankruptcy.  

The attorneys at Harmon and Gorove have decades of experience in protecting assets from creditors.  We work hard to make sure that what YOU have stays YOURS. Contact our office today to set up a free, no obligation consultation to discuss your rights under the Bankruptcy Code.