Category Archives: Credit and Bankruptcy

Consumer Has the Right to Expect Due Diligence

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A consumer has the right to expect due diligence in all his or her dealings with the credit industry. “Due diligence” is a term used by a number of concepts involving either an investigation of a business prior to contractual obligations or an act providing a consumer with a certain standard of care. The use of the term is most often associated with voluntary investigations, but it can be expected to apply in many legal obligations. Due diligence is becoming the standard bearer representing the relationship between credit business and a consumer in more recent cases. Continue reading

Levy on Banking Institution Accounts

Court Order Delicatessen

Court Order Delicatessen (Photo credit: afagen)

The term “levy” can be associated with a variety of different usage including waging war, imposing a fine, seizing money in order to pay of tax liability, conscription into military service,and satisfying a monetary judgment. For the purpose of this blog, I am going to use the term in relationship to satisfying a monetary judgment.

A levy, in the latter sense, is a legal seizure of your property to satisfy a debt. Levies are different than liens. A lien is a claim used as security on a debt, but a levy can seize the property with a court ordered judgment in order to satisfy the debt.

In order to have the potential to levy someone’s property other than your own, unless you are a banking institution with a contract to cross collateralize accounts, you cannot levy the property without a court order to do so. That means anyone wanting to levy property, including bank accounts, must file and win a lawsuit in a civil court of law. In most states, they must win the lawsuit within the jurisdiction of where you live.

Credit Card debt is one of the most common types of debt satisfied by a levy. Credit collection agencies collecting for credit card companies are more often than not in today’s market, junk debt buyers. They will often file a lawsuit to collect on a defaulted credit card in order to collect the principal, penalties, and fees associated with the debt. Many of these lawsuits filed go uncontested by down and out debtors who don’t have the money or knowledge to protect themselves from the lawsuits.

If the collection agencies get wind of where you bank, they can take the official judgment from the court in hand, and instruct the bank they have the legal right to seize or empty the account to satisfy the debt described on the judgment. They can only take the amount out of any of your banking accounts that they have won in court. The bank, by law, will be required to give them the money. Sometimes, this type of action will result in the account being temporarily frozen until the bank can substantiate the claim, but don’t always count on it.

Other instances of experiencing a levy is when a banking institution has the ability to cross collateralize your account. Credit Unions are notorious for creating this type of banking relationship with its customers. After signing up for one or more banking accounts and making a loan with the same institution, the contracts for application of accounts or loans often give the institution the ability to cross collateralize.

This means that when you default on the loan, you have agreed to allow the banking institution, by contract, to seize or levy any of the other accounts you hold in order to satisfy the defaulted loan. That means they can take any or all of the money out of every account you hold with them until the loan debt is satisfied.

Even if you file for bankruptcy protection after the fact, levied property is not going to return to the bankruptcy estate because the asset was legally taken by law. If you voluntarily pay the money to a credit card company or some other banking institution you owe a debt, the bankruptcy court could get the money back because the debt payment would be viewed as a preferential treatment in relationship to all your other creditors.

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Bankruptcy Discharged and Foreclosure Follows

English: Foreclosure Sign, Mortgage Crisis

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Personal Bankruptcy Story Questions

These excerpts were taken from a personal bankruptcy story as blogged on a bankruptcy forum website on March 1, 2012: “Our Chapter 7 bankruptcy was discharged several years ago. We did NOT reaffirm our mortgage at the time, and have been paying on time and living in our home since then. However, we owe more on it, than it is worth, since home values have decreased in our area over the last several years. We are planning on moving out of state in a few years, and I’m wondering what others think…I wonder if it would make more sense to just stay put, stop paying our mortgage, and see what happens. We may be able to live rent-free for a year or more, and save/invest…Our credit scores are actually pretty good now, and we have established new credit, make all our payments on time, and always pay more than the minimum. What kind of hit will our credit scores take if we have foreclosure? Or will it even show as a foreclosure, since we didn’t reaffirm and our mortgage was discharged in our BK?”

These particular questions raised by this illustrated personal bankruptcy story are rather common throughout bankruptcy forums. Good credit scores are important to all the people who need it to buy homes, automobiles, rent, get utilities, get telephone service and a whole variety of other commodities in order to just exist in our modern society. So, the two questions raised in the illustration are very important ones and very common ones.

Ramifications of Bankruptcy and Foreclosure on Credit Scores

When someone files for bankruptcy protection, your credit scores will take a hit, and the bankruptcy will remain on your credit report for up to 10 years. In the case of the married couple in the illustration, it has been several years since the bankruptcy closed, and they have been diligently rebuilding their credit scores, something that takes time to do.

When you file a Chapter 7, you are not required to reaffirm your secured mortgage loan. The debt of the mortgage is forgiven when you do not reaffirm the loan, but the lien on the secured home survives the bankruptcy. That means anyone having a lien on the home can foreclose on the home if there has been a default or if the mortgage contract has a bankruptcy clause allowing a foreclosure when a bankruptcy is filed.

The couple in the illustration kept up their payments on time, and the mortgage company either had no bankruptcy clause or did not foreclose by choice. When the couple defaults on the loan by stopping payments as they plan to do, the mortgage company will eventually foreclose.

The moment the foreclosure begins, the mortgage company most likely will report the proceeding the credit reporting agencies. Technically, they can report the foreclosure because it is an attempt to satisfy the lien, but they technically should also show that the loan has been satisfied by the bankruptcy, showing a $0 balance on the loan.

Sometimes mistakes are made, and unfortunately, the reports reflect these errors as facts. That is why you should monitor your credit reports. These errors can be corrected. Theoretically, foreclosure notices to credit reporting agencies should not hurt your credit score, but if errors were made, they can.

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A Credit Card and the Diary of a Debtor

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When you finally realize you are in bankruptcy, the experience affects so many people in different ways. One debtor has shared her bankruptcy story on the internet in the form of diary style. She briefly recorded her story through short confessions as a debtor and how a credit card helped bring her to the brink of bankruptcy.

Some debtors see bankruptcy as a shameful thing, but this debtor, who once felt shame, has overcome bankruptcy and managed to share a sense of hope through her very elegant and poetic style of writing. Here are some excerpts taken from her diary style confessions:

  • In 2010, I was first confronted with the cold, stark reality that a bankruptcy was in my future. I was earning $50,000 plus a year but was saddled with credit card and other kind of debt, plus I was supporting my partner who was unemployed for more than a year.

  • I cried all the time the first few weeks after I came to the realization that bankruptcy was the only real solution for me. I felt like such a failure. I was so ashamed!

  • Immediately, I stopped using and paying on my credit card. I haven’t used one since early July 2010. I thought it was impossible, but I don’t even miss the credit card now.

  • I have waited [to file] because I needed to have a small surgery and I knew I was about to incur considerable medical bills.

  • And then the unthinkable happened. I lost my job in June 2011. In fact, not only did I lose my job, but I went home that night to find a water line had burst…The city shut off the water and told me I couldn’t live there until it was repaired. I somehow managed to lose my job and temporarily my home all within six hours. Talk about a bad day.

  • It was a blessing. Unemployment was a crash course on what I need vs. what I want. I had inklings of it already and had learned to live without credit. But I didn’t really learn what it was to only buy what I must have and go without whatever I wanted until then. One of the things I wanted but did not need was my house.

  • It has [all] been a blessing in disguise. I found a new job in December. It pays 40 percent less than my former one, but I am happier here. I am now solidly in Chapter 7 land.

  • That’s another lesson I learned in this. Your worth is not financial. You can’t find it in your bank statements or your credit score. It’s in what you bring to the world, what you do for people around you. I know it sounds trite, but it’s true.

  • Don’t lose sight of all the good in you through all this. Someday when we’re no longer here anymore (hopefully some day far, far in the future), it’s the things we’ve done for our friends, family and even strangers that will be remembered.

  • And I’m ready now. I’m ready to finally file for bankruptcy. I’m at the point, finally, where thinking about it brings a sense of relief, not more anxiety. I’m taking the stack of updated papers and documents to my attorney tomorrow. It’s been a long road to get here. I’ve learned a lot of hard lessons along the way. I’m ready!

These diary style confessions were shared on the internet on February 15, 2012. If you are currently facing bankruptcy, then I hope these diary confessions have given you hope for the future. You too can start over and learn the hard lessons such an experience has along the way. Are you ready?

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Debt Settlement, Collection Agencies, and Your P&L Before Bankruptcy

A recent debtor online posed a question on a bankruptcy forum about releasing personal business information about their profit and loss statement to a collection agency. If you are asking a question about sharing a business profit and loss statement with a collection agency, then an assumption must be made your business is currently in default of a loan or you would not be talking to a collection agency to begin with. How much personal information, like your business profit and loss statement, should you share with a collection agency after defaulting on a debt and before bankruptcy?

Some people put off filing bankruptcy thinking a debt settlement might solve their current financial problems. Sometimes it does, but most often, a debt settlement only postpones the inevitable, especially if the underlying cause of the symptom has not been resolved in the first place.

The collection agency you are trying to resolve a loan issue with should determine whether or not you should share a business profit and loss statement and/or income tax information. Under no circumstance should you have to share personal identifying information to a collection agency other than your name and address.

Understanding the process of debt settlement is paramount in you making the right decision in settling a debt, whether or not you should settle in the beginning, and in determining how much information you give the collection agency for those debt settlement purposes.

When default of a debt is fresh, the original creditor often holds the debt for a certain period of time to see if you are going to catch up on your payments. They may send out notices threatening penalties, fees, and interest to entice you to pay your debt in full. During this time, you as a debtor have little or no chance at debt settlement.

After a while creditors will normally turn the debt over to their in house collection agency in order for them to collect the debt. If the creditor does not have an in house collection agency, they often will hire an outside collection agency to collect for a percent of what is owed. After these second handlers of the debt are brought into the picture, they are given certain criteria the make debt settlement a priority. By this time, the original creditor thinks getting a part of what is owed is better than nothing. You can expect to be threatened by lawsuits from the collection agency if you do not comply with the collection agency demands. You can also expect the original loan to be inflated by interest, penalties, and fees that have been added to bolster their settlement.

The last line of collection activity for a creditor is to write off the loan and sell the debt to junk debt buyers who buy the debt at pennies on the dollar. It is this latter group’s collection agencies who normally push the limits of harassment, and who will think nothing of using any kind of information obtained by a profit and loss statement to gain an advantage for attaching liens from a judgment on personal assets you still own. This group is the easiest to get a debt settlement from, but you will not need a profit and loss statement to get it, especially before bankruptcy.

At this time, filing for bankruptcy protection may be your only defense left against collection agencies, and common sense says you might need a bankruptcy lawyer to help you enough bank.

Collections, Charged Off Debt, and Bankruptcy

One bankruptcy filer recently wrote to a bankruptcy forum website and wanted to know if a secured debt, like a piece of furniture, could be kept after the debt had been charged off by the creditor and discharged in bankruptcy.

Any secured debt is bound by a lien on the property secured. Bankruptcy does not discharge liens, just the debt owed on the secured property. If the creditor who sold the furniture wanted to come and repossess the property, the bankruptcy filer would be legally obliged to turnover the property.

In unsecured debt, the debt can equally be charged off by the creditor who made the loan. A charged off debt is made by a creditor for tax purposes. Once a debt has gone into default, most creditors will charge off the debt for tax purposes after a given amount of time.

Charging off a debt normally occurs after a creditor has sent the debt for collections. A creditor will either send the debt to their collection department for collections, or they will send the debt to a collection agency for collections. In either case, when they give up on trying to collect the debt, they will write the debt off their books by charging off the debt.

For those of you who are facing bankruptcy, an uncomfortable problem can occur if one of your creditors decides to charge off your debt. A creditor, like a credit card company, will often sell the charged off debt to junk debt buyers, collection agencies which buy debt at pennies on the dollar. The creditor will get to charge off the difference in what they received for the debt and what was owed.

The new owners of the debt can often confound the bankruptcy process. Usually they will tack penalties, various fees, and interest on what you owe on the debt and begin their collections activities to collect. Since they are new, you may not have included the collection agency as a creditor on your bankruptcy schedules, commonly happening nowadays.

As a result, the collection agency will often contact you after the automatic stay of the bankruptcy court has been activated and even after the the debt has be discharged by a Chapter 7 bankruptcy. Although the new owners of the debt are bound by the automatic stay and discharge of bankruptcy, they still will often take liberties with the fact they have not been notified of the bankruptcy.

Fair debt collection and bankruptcy laws both prevent these collection agencies from illegally using these type of tactics in their collections, but unfortunately, it is up to you to provide your own consumer protection. That means you may have to consult with your bankruptcy lawyer who can help stop the collection harassment by the collection agency illegally contacting you.

If you have a creditor who has already charged off your debt, sent the debt to collections, and you are feeling the stress of their harassment, contact us, and we will help you find a bankruptcy attorney in your area who will help you understand how bankruptcy laws might alleviate the situation.

Can a Creditor Report a Repossession of a Non Reaffirmed Property After a Bankruptcy Discharge?

One of the more interesting questions arising from filing bankruptcy deals with reaffirming property you want to keep from either being repossessed or foreclosed. But what happens when a creditor allows you to keep property when an affirmation agreement has not been signed and you then go into default? Can a creditor report a repossession of a non reaffirmed property after a bankruptcy discharge?

This personal bankruptcy question was posted on the internet in 2011 in a bankruptcy discussion: “My husband and I filed (bankruptcy) and were discharged in 11/10. We were able to include our pontoon boat in the BK, however, were able to keep it as long as we made the payments. We have decided that we no longer need the boat and now have not paid anything on it for 2 months. The bank called me at work yesterday. If we let the boat go back, will they be able to report a repossession on our credit? It already states included in bankruptcy.”

Despite filing bankruptcy to have a debt discharged, a reaffirmation agreement is an agreement made between the debtor and creditor to allow the debtor to reaffirm his or her debt and keep the asset as long as the payments are up to date and current. In return, the debtor promises the creditor in writing that the reaffirmed asset will not be discharged in the bankruptcy. These agreements are approved by the bankruptcy court, and the lawyer for the debtor has to sign off on the agreement stating the debtor was counseled on the legal pros and cons of making such a decision.
From the description in the bankruptcy discussion, the pontoon boat seems to have been discharged in the bankruptcy and not reaffirmed. It seems the lender for the pontoon boat voluntarily allowed the debtor to keep the boat as long as the couple was making payments on it.

The lender has every right to legally repossess the boat when it goes into default if the boat has a lien attached, but once a debt has been discharged from bankruptcy, the lender no longer has a legal right to use collection tactics to collect the legally forgiven debt. That also means the lender cannot legally report the default to the credit agencies.

Likewise, just because you legally do not have to pay your debts does not mean you cannot pay them if you want to. You can enter into a verbal agreement to continue to pay the loan, and if the lender allows you to keep the asset while paying, that is between you and the creditor. In this particular case, it is not likely the lender will report the repossession to the credit agencies.

From this personal bankruptcy story you should be able to see how complicated bankruptcy laws can be. If you are considering filing bankruptcy, you might want to consult with a bankruptcy lawyer to help you with the complexities of bankruptcy law.

Contact us here today at www.betterbankruptcy.com , and we will help you find a bankruptcy attorney in your area that will help you with any questions you may have on bankruptcy law.

What are the Steps and Time Frame For Building Good Credit After Bankruptcy?

Filing a bankruptcy will stay on your credit report for up to 10 years, so it should not be surprising that some filers want to know what the steps and time frame for building good credit are after you have filed for bankruptcy.

How fast you build credit after filing a bankruptcy depends on the type of bankruptcy you file, the amount of steady income you have, and whether you are willing to risk getting back into debt.

Some people can start building their credit back the moment they file for bankruptcy. Filing a personal bankruptcy is viewed by some creditors as a reasonable response to handling a bad financial situation, and most creditors are aware of the fact you cannot declare bankruptcy again for up to eight years. Therefore, some creditors are willing to extend you credit but with a much higher interest rate.

Expect the process of rebuilding your credit to take time. It probably will not happen in months and it may even take a few years. Here are four suggestions you might want to follow that may help you in rebuilding credit:

  1. It will not do you any good to try and rebuild credit if you do not learn the basics of handling money. Begin to rebuild credit by resolving not to ever over extend yourself in debt again. Learn to live on a budget and live within your means. Know what your necessary living expenses are and how much steady income you make a month. Try to set aside ten percent of your gross monthly income for a cash reserve until the reserve equals one full year of your salary.
  2. Pay all your bills on time every month. That means you need to know what your utility bills will be. Most utility companies will help you by allowing you to cost average your bill. Make mortgage and rental payments on time. Today, most credit reports include renting and leasing as part of your credit history.
  3. Try to avoid making the mistake of getting into time contracts with service providers like cable companies, phone companies, and the like. Instead look for service providers with open ended contracts where you can stop the service at your discretion. If needed, use prepaid phones until you get a handle on learning to live within a budget. Most contractual service providers do not help you build credit, but they can sure ruin your credit if you fail to make their payments, and failing to do so, can lead to high interest and penalties.
  4. After you have learned to handle a budget for about 6 months to a year and have built a cash reserve, then look into establishing a line of credit. You will be surprised at how man credit card opportunities you will get even when you are still in bankruptcy. If you take one of the new high interest credit cards, resolve to never pay late fees, penalties or interest. That means pay your credit card bills on time.

Bankruptcy laws can be complicated, and common sense indicates you might need a bankruptcy lawyer in order to help you understand how these complex laws may apply in your particular situation. Contact us today and we will help you find a bankruptcy attorney in your area.