Tag: bankruptcy

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. 

Return on Investment

in Bankruptcy

Return on Investment

What if I told you you could get a return on investment of more than 2,000% in just 4 months? 

Don’t worry, I’m not a snake oil salesman and I’m definitely not the Wolf of Jefferson Street.  I’m a bankruptcy attorney and what I’m telling you is absolutely true.  

See, I calculated the average cost of a Chapter 7 Bankruptcy in my office which is somewhere between $1,500 and $2,500 dollars.  I then took the average amount of debt that we discharge, which is right around $50,000.  Then I looked at the average amount of time it takes for a Chapter 7 to run from start to finish.  When I ran the numbers, I got a return on investment of 2,602.70%. That’s a number Warren Buffett or Jeff Bezos would jump all over.  In fact, outside of winning the lottery or striking it rich at a casino, there’s no faster legal way to get that kind of return on investment anywhere. 

SHORT-TERM BENEFITS OF CHAPTER 7

The biggest benefit of bankruptcy is that you can stop paying any creditor that you wish to discharge.  No more credit card or medical bills. No more garnishments. None. Zero. 

Think about how much better your monthly budget would be if you could shave off hundreds or even thousands of dollars worth of bill payments.  

The day you file bankruptcy, the automatic stay goes into effect.  That stops all collections against you dead in their tracks. .

This means that unless it’s a car loan (and you want to keep the car) or a mortgage (and you want to keep the house) you don’t have to make another payment to any of your creditors. 

LONG-TERM BENEFITS OF CHAPTER 7

A Chapter 7 means that within 4-6 months, all your unsecured debt will be wiped out.  This will immediately increase your credit score.  Don’t believe me, ask the CFPB. 

Car loans, mortgage loans and home equity loans are secured by the property, and if you want to keep them, you’ll have to keep making payments.  

If you don’t want to keep them, you typically get somewhere between 3-6 months in that property before the bank repossesses it. You get to keep it that long without making a payment.  That’s a good deal. 

All in all, the benefits of filing a Chapter 7 are incredible.  

There’s almost no legal way to gain the kind of return on investment you get through bankruptcy.  With a small investment and the stroke of a judge’s pen, you can find yourself $20,000-50,000 better off.

Social Media and Bankruptcy

in Bankruptcy

Social Media and Bankruptcy

Beware of Social Media

As lawyers, we have a love/hate relationship with social media.  Sure, many of us use social media in our own lives as well as to advertise and inform our current and potential clients.  Social Media and Bankruptcy can occasionally cause problems for our clients. 

We post pictures of vacations, shopping trips, the things we’re proud of and even how we look.  For most of us, this is benign.  We don’t have anything to hide, or so we think.  

We routinely tell people who are planning on going through a divorce to avoid social media.  It helps keep nerves from getting frayed and also helps us not say or do anything that could be misconstrued by our soon to be exes.

Just as you do in a divorce, you should also limit your activity on social media when you file bankruptcy. You may be thinking, “why does it matter what I post” and the truth is, it probably doesn’t…but creditors are getting desperate, and desperate people do desperate things.  

I will use an example here of a very high profile individual who filed for bankruptcy in the not so distant past, Curtis James Jackson III. You might know him better as 50 Cent. 

A Big Blunder

In 2015, Mr. Jackson filed for Chapter 11 bankruptcy protection. Chapter 11 is a type of bankruptcy used for the wealthy and for corporations. Everything seemed to be going well until right in the middle of it all, he posted several photos on a popular social media site. One photo was of a stack of money in his freezer, another had stacks of bills arranged to spell the word “Broke,” and a third one was of him surrounded by a significant amount of cash on a bed. Mr. Jackson said the bills were props but he had stepped in it nonetheless.  

Mr. Jackson claimed that the photos were there for him to maintain a certain image that he needed in order to continue to earn money in his chosen field.  The problem was, it looked to creditors, especially those who weren’t going to get much, that he was trying to hide assets or “live large.” Because of these photos, the judge handling his case called Mr. Jackson to court to testify and to re-evaluate his assets.

In the end, Mr. Jackson was able to repay his debts under Chapter 11 and emerge debt free and fully reorganized.  However, he could have faced a much worse fate if he’d been found to be hiding assets and his little stunt likely caused a great deal more expense than was otherwise necessary in additional attorney fees. 

Avoid Problems All Together

Your creditors likely don’t know you personally. They don’t know that picture you posted at the beach was for a work trip and that time you checked in at the airport on social media was so you could fly to see a sick relative. They don’t realize that the picture of you in the shiny new car was actually a rental you had while your old car was being repaired.  

In other words, just remember, be careful what you put out there.  You never know who is watching and how they’ll take what you’re doing.  To you it was benign and potentially even necessary but to them, it could look like you were trying to hide something…or worse. 

If you have questions about a bankruptcy, don’t hesitate to call us.  We’ve been doing this a while and we’ve seen it all.  Including creditors using social media to hound clients. 

Emotional Barriers to Bankruptcy

in Bankruptcy

Rock Bottom

Generally speaking, debt evokes strong emotions.  Those strong emotions often keep people from filing bankruptcy.  While these emotions are understandable, they shouldn’t be the reason why people keep slogging through years of debt related stress long after they should have sought help. The barriers we must overcome are:

Fear

Hardheadedness

Pride

These three emotional barriers keep people stuck in the cycle of debt.  

Fear

It’s the unknown.  While this kind of fear probably kept our primitive predecessors alive, today, there’s no excuse for not being informed.  

People are scared that they may not be able to access credit, they fear being viewed as a failure, they fear that somehow, others will judge them. Those things keep people on the sidelines and stop them from seeking the help they so desperately need.

Some of this fear is irrational but most of it stems from heaps of band information.  Some of this bad information is just a misunderstanding but a lot of it is deliberately spread by people who profit from your fear. Unscrupulous creditors seeking to keep you out of bankruptcy so they can squeeze just a few more bucks out of you before you seek the help you deserve. 

In the end, fear of bankruptcy is understandable. However, I’m going with FDR’s thought.  All we have to fear is fear itself. 

Hardheadedness

Hardheadedness is a trait that you really have to appreciate.  It causes people to finish the race, to follow through, to succeed against the odds.  It’s a virtue. Sometimes though, hardheadedness keeps you from seeking the assistance you need. 

You say to yourself, “I created this mess for myself, now I am the only one who can get out of it.” While that feeling may be honorable, it isn’t always logical. 

You’ll keep trying to chip away at the mountain of debt you’ve gotten yourself in and you’ll end up neglecting the things you need to focus on.  You’ll forego a real and important need that can make your life better and more fulfilling.  Often people skip medical treatments, let their mental health suffer and they’ll often neglect the biggest thing you can do to improve your life…save for retirement. 

Pride

 “I can pay my debts.  I’m not the kind of person who files bankruptcy.”

I hear that garbage all the time and I want to scream. 

Well, who files bankruptcy anyways?

A lot of times it’s people you know. People just like you. People who have gotten sick, people who have lost their job or seen a decline in income, people who got sucked in by the flashy and expensive world we live in. 

You don’t file bankruptcy because you’re immoral.  It’s a legal solution that fixes an economic problem.  After all, not having enough money isn’t a crime. Even Jesus associated with people who couldn’t afford the trappings of life. 

Look at the people who have filed bankruptcy.  Former Presidents, major corporations, even Walt Disney.  Do we look at people or companies in a lesser light just for asking for help to start over?

For far too many people, it takes hitting rock bottom to get over the emotional barriers:  when these irrational emotions are finally whittled away, rationality wins out and people seek the help they truly need. 

If you need help, don’t wait.  Call us today. We can get you the help you deserve. 

Life…after bankruptcy

in Bankruptcy

Are you tied up in debt? Should you file bankruptcy? 

Is it better to live with this debt and keep making the minimums?

What’s going to happen to me if I file bankruptcy?

WHAT’S LIFE LIKE…AFTER BANKRUPTCY?

Every one of these are Good questions.  I applaud people who realize that debt and debt relief have consequences for the future. We’ve written about it before. People are scared of what they don’t know and we all know that you’ve heard all the horrible myths about bankruptcy.  

Now that we have looked at this we have to turn the question around:  what will life be like if you continue on as you’re doing now?

Spending your life in debt

Servicing debt cuts your options for the future.  Think about it.  A large portion of your paycheck is already spent before you even see the check. It doesn’t matter if it’s a credit card bill, a doctor bill, the light bill or a payday loan, you’re locked in.  

Not long ago, the government published a study that stated most Americans couldn’t even handle a $500 emergency without borrowing money.  Even more than that, you’re also likely not making provisions for your retirement because you’re spending all your money paying for the now.  

Lots of people tell me they don’t think they’ll ever retire. Some say it because they like what they do…but most can’t make ends meet without a job. What you don’t consider now is 1. You will get old (unless you drop dead) and the job choices you have will diminish the older you get.  The older you get, the less able you are to handle the rigor of a full time career. 

Beyond that, we all know that stress kills.  Study after study show the negative side effects of stress.  Jobs are stressful. Do you really want to spend your golden years scratching and clawing at a job just to get by? 

After bankruptcy

So, you pulled the trigger and made it out of debt.  

What now?

Here’s a list of the negative aspects of filing for bankruptcy.

  • Credit (at least in the short term) is more expensive
  • Bankruptcy will show on your credit report
  • If you rent some landlords may be uncomfortable
  • Some new employers will have issues. 

Time heals all wounds and that is true even of bankruptcy.  This needs to be weighed against the negatives of continuing in debt. 

Everyone always worries about their credit score but let’s be honest,  if you’re this deep in debt, it’s probably not great anyways.  The biggest thing is to look at your debt to income ratio. That gets better immediately.   Don’t believe me, just ask the CFPB. 

The Benefits of Bankruptcy

Bankruptcy might be the first step to improved financial health.  You can start with more financial alternatives and the chance to do things differently.

Bankruptcy may even be a step in better physical health. Stress takes an enormous physical toll on your body, not to mention the mental health implications.  Bankruptcy, ultimately wipes out that stress so people can go on living their lives.  Bankruptcy also enables you to save for the future.  It wipes clean all the things that were nickel and diming your paycheck to death and allows you to finally start building that nest egg to help you with the unexpected or to save for retirement.