Tag: bankruptcy

A Myth: 5 Big Lies About your Score

in Bankruptcy, Credit and Credit Cards

myth

We’ve talked a lot about credit scores and we’ve tried to debunk a myth or two about them.  Credit Scores are the topic of almost every conversation we have in our office with clients.  They’re always concerned about how a bankruptcy will affect their credit score going forward.  While we can tell you that bankruptcy will change your credit score, we can also tell you that your credit score will improve dramatically in the weeks and months following your bankruptcy.  Don’t believe me? Just as the Consumer Financial Protection Bureau. 

That said, there are a number of myths about credit scores and how they change and how that change impacts you.  

Myth #1: The higher the income, the higher the score

Your income and your credit score are almost entirely unrelated.  Obviously, the better your debt to income ratio is, the more likely you are to get credit. However, the bulk of your credit score is made up of three things: Payment history, how long a line of credit has existed and credit utilization. 

We’ve had clients making minimum wage who have excellent credit and clients making 6 figures with credit scores in the 500s.  Your income is not indicative of your credit score.  

#2: Carrying a balance increases your score

Apparently, more than 3/5 of consumers believe this.  It is also a total lie.  In fact, credit card utilization (i.e. how much you owe) is one of the biggest factors in determining your credit score. 

You should always shoot for having a utilization rate under 30%.  That is considered healthy by pretty much every major credit reporting agency.  Carrying a balance is eating up your credit utilization and also likely costing you substantially in interest.  

#3: Closing an old card will increase your score.

Nope. One of the major factors in determining your credit score is the longevity of your credit history.  The older the account the more it helps your cause.  In fact, you should do everything you possibly can to keep a card active, even if you don’t use it. 

Take it out from time to time, but at least once a year, and use it for a small purchase.  Pay it off on or before the due date to keep the card active.  The longer you have that account open, the positively it will reflect on your credit score. 

#4: There’s only one credit score

This is a major myth.  While the FICO score is the most commonly used score, there are a number of other companies that utilize and create credit scoring models.  

There are many credit scoring agencies out there and they all do things slightly different.  In fact, the score you just saw on whatever app you’re using may not be the same one that lenders view.  However, there is one universal truth.  If you have “Good” credit with one, you should be in the same ballpark on all the other ones as well.  

#5: Co-signing a loan won’t affect your credit

This is perhaps, the most dangerous myth about credit scores.   Co-signing is ALWAYS a bad idea.  We’ve discussed it before.  Co-signing increases your credit utilization just as if you charged up a significant balance.  Credit agencies consider co-signing the exact same thing as you taking out a loan on your own.

If the person you co-signed with misses a payment or, god forbid, defaults, you’re on the hook for that loan.  Those missed payments and the eventual default will lead to extremely negative consequences for your credit score and could potentially lead to lawsuits and other collection efforts.

Don’t let lies, misinformation and myths get in the way of making good choices when it comes to credit.  If you have questions about your credit, financial information or bankruptcy, call us.  Our firm has been helping people get out of debt for almost 40 years. 

The Charitable among us

in Bankruptcy

Charitable

Charitable donations are a regular part of people’s lives.  Whether it is a religious organization or a different kind of charity, our society and our laws frequently take steps to encourage donations to these types of organizations.  The IRS Tax Code allows for deductions from income for donations to these organizations and the bankruptcy code also specifically allows these types of donations to continue. 

While it’s true that the bankruptcy code doesn’t allow certain transfers of money before filing, reasonable charitable donations don’t qualify as a “fraudulent transfer.” A fraudulent transfer is, for example, let’s say that before you file bankruptcy, you sell your car to your sister for $10,000 less than it’s worth, or you just give it to her.  That’s called a fraudulent transfer because you are effectively “cheating” your creditors out of money they could have potentially recovered. 

The bankruptcy code allows the transfer of money or property to charitable organizations to an extent.  Under the code, you may transfer money to a charitable organization so long as it does not exceed 15% of your total gross income for the year in which the transfer was made.  In cases where it does exceed 15% of your income, it is still not considered a fraudulent transfer as long as it was consistent with what you had been doing in the past.  In other words, if you’ve given 20% of your income to charity, you may continue to do that.  That said, it is imperative that your giving is in line with what you’ve done in the past.  Otherwise, fraudulent transfer rules could kick in.  

Once a debtor files their case, fraudulent transfer rules aren’t quite as big of a deal.  You’re generally free to make charitable contributions.  In a Chapter 7, debtors should be very cautious of transferring property to ensure that it is exempt (protected from the trustee) before transferring it.  In a Chapter 13, you can continue to donate along with making your payments and it is counted as an ongoing expense.  You may continue to make these reasonable donations so long as you can also make a fair payment to your creditors.  

Of course, all of these situations require the guidance of an expert attorney.  That’s where we come in.  We have helped thousands of people successfully navigate the bankruptcy process.  If you’re ready to take the first steps towards financial freedom, give us a call.  

A Matter of Fairness

in Bankruptcy, Credit and Credit Cards

fairness

Bankruptcy is, at its core, a matter of fairness. It’s one of the greatest tools for people looking to get out of debt and return to a semi-normal life (I say semi-normal because let’s be honest, what is normal anyways). If you’re unable to pay your bills and service your debts, you’ve got to make tough choices every month.  

Do I want to keep paying Monster Mega Bank for some shoes and a TV I bought 5 years ago when I couldn’t see the big picture, or do I want to put that money towards my retirement savings? 

If you don’t have enough money to make your mortgage payment, car payment, utility bills or groceries, you need to cut where you can, and old debts are a good place to start.  

What does Bankruptcy Do?

Bankruptcy is designed to ensure fairness.  Look, no one wants to take on debt they promised they’d pay and then not pay it.  

Bankruptcy is designed to ensure that everyone gets a fair shake.  Creditors get paid back what a person can afford and the debtors are able to go on and pay for life’s necessities.  

Safe Spending?

As a debtor who is considering bankruptcy, many clients ask, what CAN I spend money on? The answer is simple

  • Healthcare
  • Personal care products (think grooming and personal hygiene)
  • Reasonable clothing (don’t run down to the local Chanel boutique and buy a new suit)
  • Childcare costs
  • Educational expenses
  • Utilities (Power, Gas, Water and Sewer, Internet, TV).
  • Transportation expenses
  • Reasonable expenses for entertainment

Additionally, you may also continue to tithe, contribute to retirement accounts and pay for insurance products as long as they aren’t excessive, unreasonable and you were doing it before you filed bankruptcy. 

This is especially true in a Chapter 13 Bankruptcy.  In a Chapter 13, you’re required to pay all disposable income (i.e. what you have left over after all you necessities are paid) back to their creditors through the bankruptcy plan.  

The Chapter 13 trustee analyzes your salary, listed expenses and other items listed in your budget to make sure that everyone is being treated fairly.  

Because of this, it’s imperative that you have a highly experienced bankruptcy attorney on your side.  A good bankruptcy attorney can ensure that you don’t have to pay back one cent more than you’re legally obliged to.  

In a Chapter 7, your budget isn’t as heavily scrutinized since you’re not having to make payments to your creditors. However, it’s still a good idea to have an experienced attorney on your side.  If the Chapter 7 Trustee feels like you’re sitting on a large pile of disposable income, they can request that your Chapter 7 be forcibly converted into a Chapter 13. 

In Good Faith

You must file your bankruptcy case in good faith. Good faith essentially boils down to fairness.  If the bankruptcy code is going to be fair to you, it must also be fair to your creditors.  You can’t lie about expenses or hide sources of income.  This can result in your case being dismissed, converted or could even lead to charges of perjury.  This is yet another good reason to have an experienced bankruptcy attorney on your side.  

Before you file bankruptcy, you need to be cautious about spending great sums of money on things you don’t need.  It’s not unreasonable to go out to eat once in a while or go to the movies, but don’t treat yourself to a $5,000 shopping spree at Saks Fifth Avenue. Spending like this is considered a luxury and can draw the ire of the Chapter 7 trustee.

Trustees may argue that you did this with the intent to defraud creditors.  The same goes with transferring property or selling things for less than they’re worth.  If you engage in these types of behaviors, the trustee could sue the person you transferred the property to in order to recover the value of that for your creditors.  

If a debtor engages in these types of behaviors, the court can punish you by denying  your discharge, or worse.  

That said, bankruptcy is there to protect people who are honest and upfront about their troubles.  Paying for life’s necessities isn’t illegal and in reality, that’s what bankruptcy is there for.  

If you’re ready to take the first step in becoming debt free, call us.

A Resolution

in Bankruptcy, Credit and Credit Cards

The new year always brings new challenges, fresh hopes and resolutions to make life better and more fulfilling. Life comes at you fast as these last two years of living under a global pandemic have taught us.  Things change fast and often for unexpected reasons.  One thing that we all know about life is that we need to face our challenges head on and take control of the situation.  

Make a Resolution

One of the most troubling situations we find ourselves in is debt.  We have repeatedly discussed the harmful effect debt can have on our physical and mental health. Debt also keeps us from getting ahead in life.  If you’re constantly scraping and clawing to make minimum payments on credit cards or you’re in over your head on auto, boat or RV payments, you’re never going to be able to save for retirement or leave a nest egg for your loved ones when the time comes.  

More Americans got into debt this holiday season than in previous years.  Nearly 1 in 3 Americans spent an average of more than $1,200 more than they could afford.  Most of that spending was covered by credit card usage.  

The Reality of Debt

What does that mean for the 33% that spent that much more than they could afford?  First of all, in the short term, it means struggling to make higher payments. In the long term, it means less money to save for the future.  

The average American household carries around $6,100 in revolving (credit card) debt.  Add to that an extra $1,200 and suddenly an average monthly minimum goes from around $250 a month to nearly $300.  Add to that the nearly 1 extra year of payments and nearly $2,000 more in finance charges and you have a real problem on your hands.  

If you invested that same $2,000 in finance charges and the $50 a month payment increase in an interest bearing account, over the same amount of time, you’d have over $12,000 in savings. If you took that same $7,300 and invested it and made a $300 a month contribution to your savings, you’d have 67,000 over the same time period.  

Now What?

So, Amanda, what’s your point? 

My point is this.  

Make a resolution to do something about your debt.  

Bankruptcy is the most absolute way to rid yourself of debt that’s ruining your life and keeping you from saving for the future.  

Bankruptcy stops the phone calls, harassing letters and lawsuits. 

It eliminates debts either through a Chapter 7 fresh start or a Chapter 13 consolidation plan. 

If you take control now, you’ll have more time to save for the future, lead a less stressful life and have more security. 

When you’re ready to keep that new year’s resolution, call us.  We’re here to help.

The HAVEN act and Bankruptcy

in Bankruptcy, VA Disability

Do you ever wonder how bad rumors get started?  Bad headlines don’t help.

Congress is considering a new piece of legislation.  It’s called the HAVEN act.  The act will correct a problem that has existed since the 2005 overhaul of bankruptcy.  

If you are a veteran who receives disability income from the VA, that money is counted in your means test.  In other words, it counts against you in bankruptcy, whereas regular disability income does not. 

Frankly, that’s not fair. 

The HAVEN Act saves the day

That’s where the HAVEN act comes in.  

Chapter 7 bankruptcy is a liquidation bankruptcy (it’s what most people who are in big debt want) and it gets rid of all of your debts that are dischargeable.  The problem is, you have to qualify for a Chapter 7 via the means test.  

This military disability increases your total income, which in turn can cause your income to be so high that you are forced to do a Chapter 13 bankruptcy. 

The HAVEN act eliminates military disability income from the means test just like regular SSI disability and gives you a big boost.  

There is, unfortunately a lot of rumors going around about the current state of bankruptcy and military benefits.  

Misconceptions about the current system

 A reporter for the military times has stated that veterans who file bankruptcy under our current system risk having the benefits taken away.  He states “Bankrupt vets can lose their disability benefits.”

This is patently false.  

The current system allows the military disability benefits to be counted in the means test, but it by no means eliminates your disability benefits.  

All this means is that IF your income is high enough, it could cause you to have to do a Chapter 13 bankruptcy instead of a Chapter 7.  

But, I repeat, you do not LOSE your benefits.  You still get a check from the VA every month just like you always did and will continue to do for the rest of your life.  

If you file a Chapter 7 bankruptcy, the trustee can’t take your check from YOUR bank account. 

Additionally, the Chapter 13 trustee does not take them from you either.  They still go into YOUR bank account and you may have to use some of your disability money to make your Chapter 13 payment.  

While all of this may seem confusing, rest assured, as a bankruptcy lawyer, it’s my job to understand the nuances of the law and make sure you get the best outcome possible.  Trust me, I do and you will. 

If you’re a veteran who is concerned about your VA benefits and the bankruptcy process, call me.  I understand it a lot better than you may think (I actually work with veterans to get VA disability for them as well). 

We’re here to help, especially those who have worked so hard and sacrificed so much already.

Don’t be scared

in Bankruptcy, Credit and Credit Cards

Scared

Often,  I advise my clients to cease making payments to credit card companies in preparation for a bankruptcy filing.  After all, if the debt will be discharged anyways, that last $29 minimum payment isn’t going to break Wells Fargo. 

I often get looked at like I just asked them to shoot a puppy. 

They’re scared and bumfuzzled. What on earth?

“If I don’t make my payment, won’t they send me to collections?”

To many of my clients, being in “collections” is the worst thing ever.  Almost like a prison even, complete with the dank, dingy cells and the rattling bars. 

Chances are, as long as you file within a reasonable time, there’s no need to be scared. You’ll probably never even hear from a bill collector. 

The weapons they deploy

Most of the tools at the disposal of a debt collector are psychological.  

They call and harass (alot) to try to get you to pay up.  If you don’t there isn’t much else they can do without deploying their next weapon.  

A lawsuit.

This is where things get hairy.  In the State of Georgia, a lawsuit can (and often does) result in a garnishment.  They can take 25% of your pre-tax income. 

I don’t know about you, but if I lost 25% of my pre-tax income, I’d be up a creek. 

The good news is, bankruptcy stops garnishments dead in their tracks, but that’s not the point of this blog. 

What really matters 

The problem with debt collectors is that they have you focused on the wrong thing and they often have you scared for no reason. 

They want you to worry about their problem.  Namely, the debt you (supposedly) owe them. 

They are concerned about getting their money, but often, paying this one bill isn’t going to solve all your problems.  In fact, it may make them worse.  

You need to be focused on solving the bigger problem: What does the totality of your financial life look like? 

First, don’t let debt collectors distort your priorities. There are bills that absolutely need to be paid first.  Mortgages, child support, rent, car payments, taxes.  Without a roof over your head or a car under  your bottom, you can’t get to work. 

Additionally, the government is way more aggressive than any collection agency could ever dream of and the government doesn’t give up. 

I try to impart upon my clients this important lesson.  Don’t worry about one debt collector. Worry about the whole health of your finances.  

In the end, you need to be able to sort out your finances and find a way to live in financial peace and comfort.  

You need to be able to sleep at night, make ends meet and retire one day. 

That’s why you need to call me.