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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.  

Obtaining Credit After Bankruptcy

People who come into our office considering bankruptcy are often concerned that they’ll never again be able to get credit after bankruptcy.  These fears are perpetuated by credit repair companies and debt settlement scam artists who are trying to convince people that THEY can fix their problems without the “stigma” of bankruptcy.

I’ll say this one time and one time only with as much emphasis as I possibly can.

UNDER NO CIRCUMSTANCES DOES BANKRUPTCY PRECLUDE YOU FROM GETTING CREDIT IN THE FUTURE.

Yes, credit after bankruptcy will be harder to come by and you’ll likely pay a higher interest rate, but you can find credit.  Yes, a bankruptcy can stay on your credit for up to 10 years after your file but as time goes on, it plays a much smaller role in decisions relating to your credit worthiness.  Truthfully, you’re probably less of a credit risk now than you were before you filed bankruptcy. After your case is over there is less demand on your income and your debt to income ratio will be vastly better.  You may even see your credit score go up.

Within two to three years after the discharge of your case, you’ll likely be eligible for a mortgage loan on terms that are similar to what you would have received if you had not filed bankruptcy.  You’ll likely be on the same playing field as those with similar financial situations who haven’t filed bankruptcy.

Alas, there is no “right” to credit.  People who look at your credit (landlords, banks, credit card issuers) are completely within their right to consider your financial history when it comes to making a decision about whether to rent you a home or apartment, giving you a line of credit or a personal loan. However, you are protected from discrimination in employment or governmental licensing based solely on the fact that you’ve filed bankruptcy.

If you feel that bankruptcy is right for you, please contact our office to schedule a free,  no obligation consultation to determine what we can do to help you get back on the road to financial freedom.  

Alternatives to Bankruptcy: Usually a Bad Idea

Pardon my bluntness, but the alternatives to bankruptcy often just suck.

I’ve heard countless horror stories about alternatives to bankruptcy over the course of my career but the one that has stuck with me was one that happened about two years ago.

A client hired a debt settlement company thinking they’d get her out of a big mess she’s gotten into.  She didn’t want to file bankruptcy because she was worried about the “stigma.” Because she was worried about the “stigma” she ended up with 5 different judgments against her and three separate garnishments.  The cost of her bankruptcy was higher than it otherwise would have been and she’s still out the $2,000 she paid to the debt settlement company. (For the record, my fee in her case would have been less than that amount.).

Living Large on Fear

Stories like this one exist all over the country.  People get ripped off every day because they’re scared of bankruptcy.  Alternatives to bankruptcy are blasted all over the internet and TV.  They are a shining example of the way these firms profit from the fears of people who think bankruptcy makes them a bad person or will, “cost them everything.” Most people will do just about anything they can think of in order to avoid bankruptcy for one reason or another.  Maybe they’re ignorant of the process of bankruptcy or they have some moral obligation they need to fulfill by paying their debts.

If you’re one of those “debt relief” companies, feeding the fear of bankruptcy will make you very rich.

Appeal to the inherent desire to do right by creditors, and you get your money before it’s obvious the debt is simply too large to pay off.

When can Bankruptcy be the Best Choice?

I’ll be very honest, Bankruptcy isn’t for everyone.  In terms of my finances, that isn’t the best thing I can say, but that’s not why I’m here. Bankruptcy can vastly improve the lives of many more people than actually use it. I have several instances when bankruptcy is a good idea. Generally speaking, the following statements apply:

  1. The greater your debt to income ratio, the more it would benefit you to file bankruptcy.
  2. If you don’t have a substantial amount of money saved up for retirement, you should probably consider filing.
  3. If you’re older, you should look at filing.

ALWAYS do your Homework

Even though I’m married to a teacher, I don’t claim to be one myself. I can, however, tell you this.  If you’re going to pay money to someone who is PROMISING to get you out of debt, you should at least meet with a bankruptcy attorney.  Our firm offers free, no obligation consultations. A lawyer can tell you about how bankruptcy should work and the risks that come with working with a debt settlement firm.

Unlike debt settlement, a bankruptcy can usually wipe out debts, often with no payments necessary so you can obtain immediate relief without the chances that the creditor will send you a 1099-C.

Other people with higher incomes or significant assets that can’t be protected in a Chapter 7 Bankruptcy can often file a Chapter 13 case.  Chapter 13s are known as debt reorganization cases.  Depending on your circumstances, you’ll pay back anywhere from 1% to 100% of your unsecured debt.

The bottom line is, there are alternatives to bankruptcy, but a lot of them stink.  If you truly want to be debt free in the fastest, most pain free way, bankruptcy is the way to go.  However, you should always decide the course that’s best for you. Meeting with one of our attorneys is free of charge and we can tell you the best course of action.  In the end, we want to help you any way we can, even if it’s to tell you that bankruptcy isn’t the best option for you. If you feel you’ve reached the end of your financial chain, don’t wait until it’s too late. Contact us today for a free, no obligation consultation.