Bankruptcy

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What is a Bankruptcy Risk Score?

There is a little known piece of information out there floating around in the world of credit data that most people have never heard of.  In fact, I didn’t even know it existed until I became a bankruptcy attorney. Most everyone has heard of a credit score and I get tons of questions about what the credit score is, how its used and how you can improve it.  In fact, the discussion about credit scores is part of nearly every consultation we do at Harmon and Gorove. The piece of information that isn’t often discussed is a person’s bankruptcy risk score. A bankruptcy risk score is a number that indicates the likelihood of an individual filing for bankruptcy.  

According to bankrate.com, “According to financial experts, this score is used secondarily to the credit score when financial institutions scrutinize a consumer’s credit history. Kept tucked away from consumers for nearly 20 years, this number differs from the credit risk score, because it’s a little more specific. It measures how likely a person is to file for bankruptcy.”  The banking industry uses the number for a myriad of reasons including lending decisions and compliance. In other words, if your bankruptcy score is too high, they likely won’t lend to you and additionally, if banks know that they have a number of loans on the books that have a high risk of filing bankruptcy, they will know how much they need to keep in reserve to cover these potentially bad loans.  

Consumers also get a raw deal when it comes to figuring out what these scores actually mean.  Each bureau has their own ratings score. Whereas the credit bureaus generally use a scale from 300 to 850 with 850 being the highest, the bankruptcy risk score doesn’t have a standard index of measurement like credit scores. This means consumers are only able to get general information about their bankruptcy risk. This means that unlike credit scores, there’s no surefire way to know if your score is high or low compared to other numbers. 

The absolute last thing any creditor wants is for you to seek bankruptcy protection, particularly Chapter 7. Once that case is filed, they have to quit calling and leave you alone.  What that means for them is that they will get no money out of you, ever. The only debts that generally aren’t wiped out in bankruptcy are student loans and income taxes (and even those can be reduced or eliminated depending on your circumstances). If your bankruptcy risk score rises, even as you are in the worst financial shape you’ve ever been in and have the least ability to pay, collection efforts may grow extremely aggressive as creditors and their slimy collection agents often view this as their last chance to get anything from you before you are protected by the law. 

If you find yourself struggling financially and you’re tired of trying to keep your head above water, give the attorneys at Harmon and Gorove a call to see how we can help you get out of debt for good.  Our attorneys have over 30 years of experience helping good people out of tough situations.  Our attorneys work every day to help people just like you, get out of debt and get a fresh start on life.  Let us put our experience to work for you.

Never Trust Your Mortgage Servicer

If you’re one of the millions of Americans who have a mortgage I’m going to say something pointed and perhaps, upsetting. Don’t trust the loan servicer on your mortgage for one second. The mortgage industry has, for lack of a better term, created a swamp around your home.  The lender’s representative (or snake as I call them) lives in that swamp.

Don’t ever turn your back on a snake.

By stating this, I don’t mean to foster distrust between people and their mortgage lender, but in all honesty, that’s the best legal advice I can give.  Ronald Reagan once use the term, “Trust but verify.” I just advise you to verify, verify, keep records and don’t believe a word they say unless you have it in writing. 

Never ever, ever rely on anything your loan servicer tells you on the phone.  Nothing.

You may use the information you gather on the phone as clues, but don’t ever draw conclusions from what you’re told by the person on the other end of the line because chances are, they don’t know anymore about your mortgage than you do.

Why these agents just can’t be trusted….

Loan servicing in this country is a huge industry with narrow profit margins. The difference between your mortgage lender and your mortgage servicer can be found here.   One of the biggest expenses for loan servicers is customer service. Good customer service is expensive. As I stated, the companies who are contracted to collect the payments on your home loan operate on very tight margins in an extremely competitive business. The cheaper the better (at least in their eyes).

People:  The most obvious place any business can reduce costs and make more money is to hire the least expensive employees you can find.  Cut their training to the bare minimum, and give them absolutely zero flexibility in how they do their jobs. In short, the person on the other end of the line probably just isn’t up for the job and chances are, it isn’t even their fault.

Procedures:  When you get a copy of how your payments are posted to your loan balance, you often see a payment posted, then reversed, then reapplied differently. A friend of mine received a loan history where the servicer made more than sixty entries on the loan ledger in a single day. I don’t know about you, but sixty entries in a single day is a bit excessive.

Selloffs:  It’s extremely rare that a servicer handles a loan for the life of that loan.  Instead, the right to service the loan is handed off or sold. One servicer to another, presumably to a company who will charge the owner of the loan even less to do the job. Usually, what the new servicer doesn’t even get a reasonable history of the loan, just a bunch of numbers that are supposed to add up to something, but what that something is, who knows.

Phone calls are not evidence so don’t even try…

The root problem with relying on what your loan service agent says on the phone is this:  How do you prove it?  You may have taken meticulous notes but unless you recorded the call (which could be illegal) you don’t have anything.

Words are fleeting and it is extremely easy to misunderstand what someone said, especially if there is a language barrier.  If there’s trouble, and there usually will be, there’s no paper record. An oral agreement isn’t worth the paper it’s written on.

You won’t work it out…

A client recently was dealing with “customer service” trying to determine how much money was required to bring the loan current before the foreclosure sale which was ten days away. Four days from the actual date of foreclosure, the servicer admitted that the loan has been sold and they had no authority to do anything, but it gets worse. The new servicer said the loan isn’t in our system yet, so we can’t tell you.  Truly, this client was almost out of options because they waited until the last minute.

When you’re in default on your loan…

Number 1, don’t wait until the last second to try to stop your foreclosure.  Foreclosure is very serious and deserves your full attention the minute you see the problem.  You will only make a bad situation worse. You should always utilize the tools you have under federal law to get the accounting and answers you are entitled to. Also, I know I’ve said it before but I can’t state it enough, don’t trust anything you’re told on the phone.  If it’s important (and if you’re behind, everything’s important), GET IT IN WRITING.

Finally, If you’re out of options and need legal protection, start interviewing bankruptcy attorneys before you get a foreclosure notice.  If you show up at the last second and many lawyers assume you’ll be a rotten client.

 

Can I Convert From Chapter 13 to Chapter 7

A very common problem for a lot of people who have filed a Chapter 13 bankruptcy  is the repayment plan that must take place during the case. So much can happen in your financial life during the 36 to 60 months that it takes to complete a Chapter 13 and receive a discharge. You could have a medical emergency, lose a job or experience the loss of a loved one. Life has a way of throwing us little curves that could complicate the repayment plan under a Chapter 13 bankruptcy and make it almost impossible to complete. The question is: Can you convert from a Chapter 13 to a Chapter 7 in this situation?

Fortunately, you are generally allowed to convert from a Chapter 13 to a Chapter 7 at any time. It is probably the most common conversion in bankruptcy. In reality, only about 33% of people filing for Chapter 13 bankruptcy are able to complete the entire three to five years required for a repayment plan in its original format. Usually this is due to some unforeseen circumstances like the ones mentioned above. If your back is up against a financial wall, a conversion may be one of your only options.  

Remember, if you have filed a Chapter 13 bankruptcy, you are allowed to dismiss your case at any time. However, it’s important to remember that once your case is dismissed, the automatic stay is lifted. That means your creditors are once again free to start collection activity or begin foreclosure proceedings.

What Do You Need in order to convert?

Once you’ve decided you want to convert from Chapter 13 to Chapter 7, there are some technical requirements that you must meet. First, you will need to file a Notice of Conversion form with the bankruptcy court. It will also require a $25 fee. Once filed, the conversion usually takes place in just a few days. When all goes smoothly, you won’t lose the protection of your automatic stay.

The one issue that you may run into is the means test that must be passed for the conversion to become final. You may have originally chosen Chapter 13 bankruptcy because your income was too high to qualify for a Chapter 7.Remember,  the income limitations will still remain in effect for a Chapter 7 conversion.

The means test was implemented as a part of the bankruptcy reform act of 2005 as a way to make sure that debtors with high enough incomes ultimately repaid at least some of the money owed to their creditors. If your job or income has changed or you have gotten a divorce or lost a spouse that brought income into the household that pushed your into a Chapter 13 bankruptcy, you will likely be able to pass the means test now. However, if you still make too much money to qualify for a Chapter 7, your conversion will be denied.

What Happens After the Conversion?

Once your petition to convert from Chapter 13 to Chapter 7 is approved by the court, any money you have paid the trustee that has not been divvied out to  your creditors will be returned to you. Your Chapter 13, at this point, is concluded. You will now receive a new Chapter 7 trustee and you will have another 341 hearing with that trustee. Harmon and Gorove will then assist with filing a new statement listing all your assets, liabilities, income and expenses. Going forward, your case will act just like a normal Chapter 7 bankruptcy.

Pros of Converting From a 13 to a 7

  1. You’re done with the Chapter 13 repayment plan.
  2. A normal Chapter 7 is usually completed within 4-6 MONTHS of filing, not 3-5 years.
  3. All unsecured debts are discharged under a Chapter 7.

 

Cons of Converting to a 7 from a 13

  1. Depending on what kind of debt you have, a Chapter 7 may not help if your troubles are from certain types of secured debts.
  2. A Chapter 7 can be on your credit report for up to ten years.
  3. The Chapter 7 trustee may sell certain assets you possess to pay creditors in Chapter 7.

If your Chapter 13 repayment plan is creating an unbearable burden on you, a Chapter 7 bankruptcy may be a better fit for your financial situation. In order to understand the process and your rights under Georgia bankruptcy laws, you’ll need to speak with an experienced Georgia bankruptcy attorney. Remember; you have options!

Adding Debts to your Bankruptcy

Bankruptcy, whether it is a Chapter 7 or Chapter 13 case, is a useful and wonderful tool you can use to dig yourself out of a bad financial situation. The only downside is that it’s pretty much a one shot deal. Think of it as a yard sale for your debt. On that day you have to unload your stuff and you can’t go back and add anything to that garage sale after the fact. That’s a broad idea of how debt in a bankruptcy works. Every penny of debt you have when the bankruptcy is filed can be part of the bankruptcy but adding debts, as a rule, can be difficult. However, there are some rare exceptions.

When can you add debt to a Chapter 7?

When you come in to our office for your bankruptcy consultation, you should bring copies of all your bills. A recent version of your credit report would also be extremely helpful as well. By doing this, you can make sure that all your debts make it into the bankruptcy petition we file with the court. But you may not bring everything or you may have a recent bill that you don’t have a copy of or that isn’t reflected on your credit report.

If you realize after the initial filing that you forgot to tell us about a debt you incurred BEFORE the petition was filed, you can notify your attorney and the petition can be modified to include that debt. Generally speaking, there is a modest fee for the additional paperwork due to the court costs incurred by us to file the updated petition. 

When can you add debt to a Chapter 13?

We can modify your Chapter 13 bankruptcy if you forgot to include a bill or debt in the pile of paperwork you gave your attorney just like we can in a Chapter 7. However, this can be a little more of a hassle if the debt is substantial or if it’s secured because it could trigger a change in your Chapter 13 repayment plan and possibly cause your Chapter 13 payment to go up. If your attorney has to redraft your repayment plan, you’ll likely have to pay an additional fee including more court costs to modify the case.

When can you add debt to a bankruptcy after the initial filing date?

Sometimes you can add debts to your bankruptcy that were incurred after your initial filing date. These situations are as follows:

  • Your Chapter 13 is dismissed and you file another Chapter 13 case. All of the new debt you incurred between the two filings can be included.
  • If you file a Chapter 7 and receive a discharge then file for Chapter 13 protection, you can add any new debts to the Chapter 13.
  • If you file a Chapter 13 and then find yourself unable to make the payments and choose to convert to a Chapter 7, all the debts you racked up between the Chapter 13 filing date and the date of conversion can be added to your new Chapter 7.

 

How to avoid having to modify your bankruptcy case

You generally want to avoid modifications if you can.  Modifying your case can add time and expense that can be avoided if you plan your case the right way.  Planning your case often seems counter intuitive because most people view bankruptcy as an option of last resort and rush into it with the first attorney they find. The better scenario is to schedule a free bankruptcy consultation with a reputable attorney who can help you. They can help you plan the best time to file so that it maximizes the impact the bankruptcy will have on your debts.  You should never try to figure out bankruptcy on your own.  A mistake can be very costly and potentially wipe out any benefit you may actually receive by filing bankruptcy. 

The second thing to consider is preparation. Preparation is imperative to the success of your case.  You will need two years worth of tax returns, 6 months worth of pay stubs, a copy of all your bills, your bank statements and any other statements you have including savings accounts, receipts for childcare, rent or mortgage statements, and any other financial agreements.  Basically anything you would need to prove your financial situation. 

The experienced attorneys at Harmon and Gorove can give you advice based on your individual circumstances. Their decades of experience can help you make sure that your filing is as successful and impactful as is possible. Do yourself a favor and invest in your future. Contact the competent and compassionate attorneys at Harmon and Gorove today for a FREE consultation.  Let us help you get your life and your financial freedom back from greedy creditors.

 

Is Debt that’s Discharged Really Gone?

Can my old debt come back to haunt me?

Clients ask this constantly.  They’re scared to death that the problems they had before their bankruptcy will come back and that the relief was only temporary.

The short answer is no.

Debt that is wiped out, in your bankruptcy case is gone as a legal liability forever.

The automatic stay that stops all collection activity when your bankruptcy is filed is replaced, once your case is complete, with a discharge injunction.

But then, this is law, so nothing is quite that simple.

Personal liability

The bankruptcy discharge eliminates all personal liability for debts that can be discharged.

If you eliminate your personal liability, your former creditors can’t sue you to recover discharged debts and can’t get a judgment that allows them to place liens on your assets or garnish your wages.

Was the debt discharged

Bankruptcy law prevents some debts from being discharged in bankruptcy. If you want your debt discharged, your debts must be listed in your bankruptcy schedules in order for us to notify your creditors.  We even have to notify the creditors that can’t be discharged.

Debts that can’t be discharged include

  • Child support,
  • Student loans,
  • Recent taxes,
  • Judgments for personal injury caused by drunk driving.

Unfortunately, the discharge order that’s issued by the court once your bankruptcy has concluded doesn’t list the debts that are discharged.  It just says that debts that were dischargeable in bankruptcy are gone.

Is there a lien

The discharge eliminates your personal liability for a debt.  Some creditors have obtained liens that they have attached to certain assets before you file bankruptcy.  If they have perfected that lien it can remain as a charge against those assets.

Perfected liens are an interest in property, a claim to a piece of what you own.

Some liens survive the bankruptcy.  The lien is only a claim on what you owned at the time the bankruptcy was filed.  They can not attach it to assets you acquire after you file bankruptcy.

A lien survives unless you get a bankruptcy order that avoids the lien. Those liens can be eliminated if it impairs an exemption you claimed in the bankruptcy case.

In order to do this you must file a motion to avoid lien in your case.  This means you need to tell your attorney that a creditor might have obtained a judgment from another court and placed a judgment lien before your bankruptcy case was filed.

Do creditors know you got a discharge

Your bankruptcy filing requires that you list all your creditors with good mailing addresses. We do this so they get a notice when your discharge is entered.  Notice to creditors is also about due process because your creditors do have certain rights.

Creditors also get notified so they can participate in the bankruptcy proceedings. It allows them to exercise their rights in the case.

Once your case is discharged, the court mails a copy of the order discharging your debts to everyone on the list of creditors you provide to your attorney at the onset of your case.

If you leave creditors off the list or the debt is sold to someone else, they have no way of knowing that you’ve discharged your debts.  However, notifying creditors isn’t everything. There are rules that pertain to bankruptcy that wipe out debts, even if the creditor isn’t notified.  

So, the rule is:  the debtor’s personal liability for a dischargeable claim is wiped out forever, if the creditor got notice or if there was no payment to any creditors in the case.

If you are drowning in debt, the attorneys at Harmon and Gorove are experts in handling Chapter 7 bankruptcies. We have handled thousands of cases and helped discharge millions of dollars of debt for our clients.  If you feel the need to speak with a qualified bankruptcy attorney contact the attorneys at Harmon and Gorove to schedule a free, no obligation consultation to find out what your rights are under the Bankruptcy code.  

 

 

The Side Effect of Debt

Debt is something that is a fact of life in the modern world.  Everywhere we turn, we are forced to borrow money in order to get ahead in life.  We have to borrow money for our education, our homes, our cars, even our phones and healthcare. In an ever more expensive world, debt is a burden that we must all bear.  One thing you should keep in mind though as you take on debt is that there is a side effect and debt should be used sparingly and in ways that will IMPROVE your life.

The Consequences of Debt

Debt has several side effects.  The first side effect is that you WILL pay more for an item bought using debt.  This is called interest and virtually every lender expects to be paid some amount of interest.  The second side effect is that you can face difficulty repaying that debt. When you take out loans, lenders generally look at your income vs liabilities.  That’s called debt to income ratio. If you lose your job or face a pay cut, you could find yourself stuck owing more than you can physically pay back. The third side effect of debt is that you can end  up being a slave to that debt. You’ll always feel like you have a yoke around your neck constantly pulling against you and keeping you from achieving your financial goals. Finally, the last side effect of debt is the added pressure that debt can put on you and your relationships.  Poor financial decisions is one of the leading causes of divorces and breakups. It even causes some people to rethink whether or not they wish to marry to someone.

Some Debts can be Good, but understand reality

Like I said earlier, some debt is necessary and in fact, some debts can even be beneficial.  Having a home loan can help you buy a house and build equity. Homes are often times the biggest asset the average american can own.  Home ownership is vastly higher in the U.S. than it is in most of the developed world. Student loans, when used responsibly, can help people meet educational goals that improve their lives and help them earn more money.  The biggest thing about these debts are that they need to be used sparingly and only taken out in small doses. Just because a lender says they’ll loan you $400,000 on your home doesn’t mean you should do it. Many people who took out student loans took out more than they needed or didn’t look at ways to cut costs like attending in state public schools, utilizing community colleges and technical schools or getting degrees that won’t help them achieve their financial goals.  Having $150,000 in student loan debt for a bachelor’s degree from your dream college doesn’t feel so good when the payments come due and you’re only making $20,000 a year working as a barista.

Interest is a real drain on household resources each year as well.  A typical family in America pays an average of $10,000 per year in interest and the average person could pay hundreds of thousands of dollars in interest over the course of the life of a loan, especially mortgage loans.  Imagine what you could do with that money. Pay cash for you education, save for retirement, go on a vacation, the list goes on and on. The bottom line is, when you take out debt, make sure you always ask yourself if its worth it.  Is that $5 latte worth $8 by the time you factor in interest on your credit card? Is that fancy new $50,000 car worth the $70,000 you’ll ultimately pay after you account for interest? Asking yourself these questions while looking at the big picture can help you have a brighter financial future.

Don’t put off seeking professional help

A side effect is an unwanted outcome that often places a significant burden on the person experiencing it. If you’re already experiencing the burden of debt, you should consider contacting us for a free consultation .  We meet with clients all the time who don’t want to file bankruptcy because it would hurt their credit.  What they don’t realize is that having a credit score of 800 is useless if you are already maxed out on debt.  While repaying your debt is an admirable goal, it’s not always possible or even advisable. Starting fresh is exactly what bankruptcy is all about and why we do what we do.  Filing bankruptcy is better than spending the remainder of your life in debt, never getting ahead, and never saving for retirement. At the very least, you should speak with a qualified bankruptcy attorney about how they can help you recover your financial well being using the bankruptcy code to your advantage. Consultations with a qualified, award winning attorney, are always free at Harmon and Gorove.  We’ll be honest with you about your options and never pressure you to do something that isn’t in your best interest.