Month: June 2021

Reaffirmation & Credit Scores

in Bankruptcy

There’s a common question amongst my clients.  Should I reaffirm my car loan and does it help rebuild my credit after bankruptcy? 

Rebuilding credit is very important to all of my clients.  We live in a world fueled by debt.  It’s the nature of capitalism.  

Does that mean I should sign away the benefits of my discharge just to keep a car loan and try to rebuild my credit?

Reaffirmation Agreements

The reaffirmation agreement, or reaff for short, is where you agree to be personally liable after your bankruptcy for the balance of the car loan.  If you miss a payment on a reaffirmed loan the lender can repossess the car and then sue you for the difference between what they get at auction and what you actually still owed. 

Unfortunately the desire to rebuild credit often overwhelms my clients who are often severely underwater on the car.  While this desire certainly exists, the reality of the situation is…

The Reaff has no effect on credit scores

Believe it or not, this has actually been litigated.  A woman who had a very modest income had a 40 mile commute to an area with very little in the way of public transit.  She wanted to reaffirm her car loan but upon further review of the facts, the judge wanted to look over it themselves.  The judge was worried that the reaff was not in the best interest of the debtor. 

The woman’s attorney told the judge that the client’s primary concern was rebuilding credit after the bankruptcy and that’s why she wanted to reaffirm. 

At the hearing, the judge called in a witness from Wells Fargo who testified that:

“The reporting of positive payment history on an account that has a discharged in bankruptcy indicator would not be beneficial for a consumer from a scoring perspective.”

The expert testified further that the reaffirmation agreement’s impact on the debtor’s credit score would be “none if very low” and could in fact actually lower the consumer’s credit score.  

Because of this, the judge disapproved the reaffirmation agreement in this case. 

Reaffirmation is risky business

For some people, it makes sense.  If you can afford the car, you’re not underwater and the car is in good shape you may want to consider the reaff.  The message, however, is quite clear.  Reaffirmation isn’t a guaranteed positive on your credit report in your post bankruptcy life.  

If you’re looking for information about bankruptcy, call us to schedule a free, no obligation consultation. 

Forgiven

in Bankruptcy, Credit and Credit Cards

Forgiven

There is a need to be forgiven in the world.  Forgiving others as well as yourself is so important to your mental health.  I discuss mental health a lot on this blog and I believe that it is one of the most important health topics in our country.  

The “forgiven” in bankruptcy goes beyond just the debts.  We need to forgive ourselves in the bankruptcy process.  

A bankruptcy attorney named Rachel Foley wrote about forgiveness in the context of bankruptcy.  

She wasn’t just talking about relieving yourself of debt but also relieving yourself of the negative emotions of the debt itself.  

She advises that we shed anger at the people who threatened the wellbeing of our family and she encourages us to look forward. 

Where she and I differ is on the point of forgiving not just your creditors, but forgiving yourself. 

It Starts at Home

Clients come to me in times of trouble.  They assure themselves that even the act of making an appointment makes them guilty of some unspeakable crime.  That they are guilty of some heinous act. 

But what are they guilty of?

Job loss?

Surviving a Pandemic?

Crashed investments?

Getting sick?

Going through a divorce?

Yes, hindsight is always 20/20 and sometimes there is a choice we make that maybe wasn’t the best decision.

But that doesn’t make us a bad person.  We ALL make bad choices sometimes in life. 

Even some of the biggest corporations in history have filed for bankruptcy and they’re all run by people who are supposedly the best and the brightest.  

If Presidents, businessmen and corporations file for bankruptcy, why do we make ourselves feel guilty?

Living in the Imagination

People believe that bankruptcy will end like the biblical day of judgement.  They stand in front of some Judge and confess their sins, hoping not to be cast into a lake of fire.  

Frankly, this isn’t how bankruptcy works at all.  For nearly all people who file bankruptcy, you’ll never even see the judge. The judge will likely never even give a moment’s thought to your situation.  There is absolutely NO subjectivity in an unchallenged bankruptcy…and most are unchallenged. 

My clients imagine bankruptcy like the Day of Judgment, lined up before the bench to be sorted into those who are worthy of forgiveness of debt and those who are not.

As the debtor, you are presumed to be entitled to discharge.  It is only rarely that someone is scrutinized and generally you must have filed the case in a deceptive or dishonest way in order to be put under the microscope. 

“Forgiven” starts with you

If you’re feeling guilty about filing bankruptcy, it’s all self inflicted. You must start with forgiving yourself and then let that feeling rush over you and extend to others.  

The past is in the past.  

You can’t change what happened now. 

You can only move forward.

When you’re ready to begin your journey towards forgiveness, call me. 

Before Bankruptcy Essentials

in Bankruptcy

Before Bankruptcy

If you make a plan before you file bankruptcy you’re more likely to end up coming out on the other side much better off. 

Even if you’re just dipping your toe in the water it’s better to take some time and learn the rules and lingo of bankruptcy.  After all, we want to maximize the amount of relief available.  

If you don’t plan ahead, you’ll have fewer options than you might otherwise have had.  

Below, I provide an essential checklist for you to reference before you file.  

What’s your income?

The means test determines whether you have access to a Chapter 7 or if you’re relegated to filing a Chapter 13 (Thanks Joe Biden).

The means test looks at your gross income (not take home) and any other regular contributions from others to your family’s cost of living.  

You’ll need to look at paystubs, commission checks, stock dividends, even child support and any gig jobs you may have.  We’ll compare all of that to Georgia’s median income ($58,700 in 2019) to see if you qualify for a 7. 

FILE. YOUR. TAXES

Your returns can tell you, me and the trustee lots of information.  

Do you withhold too much from your income?

Do you not withhold enough and have to pay?

Taxes are a deduction on the means test and can be very useful if your income is above the median.  Same if you operate a business.  All of these things help with the means test. 

Exempt Income

Not everything counts in the means test.  SSI is exempt from creditor claims and is excluded from the means test.  

Some military pensions, VA disability and other pensions are exempt as well.  We’ll need statements from them to determine their exemptability. 

Set aside funds for attorneys fees

If you need to file, you’ll need a lawyer. 

I’m not just saying that because I’m a lawyer.

Bankruptcy was made endlessly more complicated by the Bankruptcy Abuse Prevention and Consumer Protection Act otherwise known as (BAPCPA).

Again, thanks Joe Biden. 

This so-called “reform” stuffed the bankruptcy code with negative consequences and tons of gotcha clauses.  You can no longer safely file bankruptcy by yourself without exposing yourself and your assets to significant risk.  

Don’t pay off debts

Trying to tidy up your finances before you file can open you up to lots of risk.  You run the risk of having the recipient of the money getting sued by the bankruptcy trustee.  The other risk you take is that you’ll end up paying off a debt that will go away as a result of the bankruptcy. 

Additionally, the means test pops up again.  Some debts are actually good deductions on the means test.   If you inadvertently pay off one of those you could cause your means test to fail. It’s better to not eliminate potential advantages. 

Replace Aging Cars

Bankruptcy can mean that credit costs more in the short term.  If you think you’ll need a new car, it would probably be better to buy one before you file than after.  

You’d be shocked at how good a deal you can often find just before filing bankruptcy, despite your credit risks.  Check the terms of the loan though, you can’t discharge the car loan and keep the car.  

The means test also plays a role here as well.  Payments on a secured vehicle can be deducted from the means test but hear me out on this; be 100% honest on your credit application and absolutely don’t buy a Mercedes when a Kia will do the job. 

Plan for the Future

Before you file, you need to know what your goals for the future are.  Do you want to keep your house or are you planning to move anyways? Are you going to try to keep your business up and running? Do you have a timeshare you want to get rid of? What do your future career prospects look like?

Planning for the long term can weigh on the route you take in bankruptcy and telling me about those plans can help guide the advice I give you.  

In the end, Bankruptcy is an extremely useful tool that helps out hundreds of thousands of Americans each year.  If you’re ready to do more than just dip your toe in the water, call me.