1) Should I file Bankruptcy? A person should file a bankruptcy if, and only if, he or she can’t pay bills as they come due or is about to lose property or have property attached by the Court. Very few people lose any property when they file bankruptcy. In Pennsylvania, you are allowed to keep $3,225 equity in a car, $10,775 in personal household goods, $20,200 in a home, and at least $1,000 in any property that you choose in a general exemption plus ½ of the unused portion of the home exemption. For married couples, filing jointly, these exemptions are doubled. In a Chapter 13, the property that can be kept is just about unlimited as the plan pays at least what a Chapter 7 would pay. Filing a bankruptcy is generally better than having a foreclosure on your credit record. A person will often be able to rebuild credit and buy a house within 2 years after a bankruptcy. A repossession can do more damage to your credit and it may take much longer to recover. Government regulations may forever keep you from financing a home with the VA or FHA if you have a repossession for a home, but allows financing 2 years after bankruptcy. Only 7 magical items may not be bankrupted: Child Support and Alimony; taxes less than 3 years old; federally guaranteed student loans; debts due to fraud; debts due to drunk driving; debts due to intentional injuries; and criminal restitution.
2) What does it cost to file bankruptcy? Court costs are about $299 for a Chapter 7 and $274 for a Chapter 13. Chapter 7 attorney fees at our office will run about $1,500 plus any expenses and Chapter 13 attorney fees will run about $3,000 plus any filing fees.
3) What happens when I file? When you file a bankruptcy, a Court order goes into effect immediately stopping all collection activity. This includes stopping foreclosures, attachments, garnishments, and Creditors calling you. The sooner you come in to the law office, the sooner you can get relief—and the more you can save from Creditors. You will have a 341 hearing within about 4 to 6 weeks after the bankruptcy is filed. When the bankruptcy is finally over, a discharge is issued. This is a final and permanent order to stop all collection activity and declaring the debts to be non collectable. Bankruptcy does not normally get rid of a security interest that you gave to a Creditor such as a mortgage or a standard car lien, but it does make you not liable for the debt.
4) Which bankruptcy is right for me: Chapter 13 or Chapter 7? A Chapter 13 is like a bill consolidation loan, and you normally file it to keep property and stop foreclosures. A Chapter 7 is used to completely wipe out unsecured debts and to get rid of secured debts for property you don't want to keep. Both will stop garnishments and Creditor harassment. If you earn more than the average wage for your state and size of family you will normally be required to file a Chapter 13. Usually, the only times you will want to file a Chapter 13 are 1) when you have already filed a Chapter 7 and can't file another one or 2) if you have so much property and equity that a Chapter 13 is necessary to keep that property. You may have to file a Chapter 13 if you have so much income (after you pay your normal monthly living expenses) that you can repay something to your debts. A Chapter 13 can repay child support, repay student loans, or protect a co-signer. The fortunate thing about virtually all Chapter 7 cases is that the Debtor’s assets are normally exempt, so there are rarely any assets to liquidate. Married couples with valuable assets, such as over $40,000 in equity for a home or over $7000 equity in cars (these amounts are for Pennsylvania), may want to choose Chapter 13.
5) Why file a Chapter 7? If you have substantial unsecured debts you may want to file a Chapter 7. You may also want to file a Chapter 7 if you want to surrender property and not owe for it. You can usually keep all your property in a Chapter 7, because you won't have enough equity in any property to exceed the exemptions allowed.
6) Why file a Chapter 13? You may want to file a Chapter 13 if you have secured debts and are threatened with foreclosure or repossession, if you filed a Chapter 7 less than 6 years ago, if you wish to protect your cosigner, or if you have debts that are not dischargeable in a Chapter 7 but are payable in a Chapter 13. Child support can be paid first in a Chapter 13 before secured creditors giving you the advantage of not losing a car or property but having all of your payments go to child support at the start of the case.
7) Can I convert from a Chapter 13 to a 7 or from a 7 to a 13? Yes they can be converted. Few people convert from a 7 to a 13. However if you earn over $60-$70,000 you have a strong chance that the US attorney’s office will file a 707 b motion that may force you into a 13. If you file a Chapter 13 you have a good chance that you will have to convert from a 13 to a 7. Over 3-5 years, you are very likely to miss payments and have the Chapter 13 dismissed (or have to re-file). Some Chapter 13 cases are never finished and are converted into Chapter 7 cases. If you are close to completing the plan, you may be granted a hardship discharge. Plans can also be later modified if incomes change.
8) How long will bankruptcy take? It will take about 3 to 4 months for a Chapter 7 to be final. (You will get a letter within 10 days of filing, telling you the time and date of the 341 hearing. This hearing will be held about 4 to 6 weeks after you file.) A Chapter 13 will take as long as the repayment plan takes, usually from 36 to 60 months.
9) What are the most common mistakes I can make when filing? Not showing up for your hearing and not listing all of your debts. Fail to show up at the hearing, and your case is dismissed. Fail to list a debt, and you continue to owe it. Also people often have too much in a checking account when they file or a tax refund coming. The best policy is to list all your debts and assets. Always list every debt, even if you think it is non-dischargeable, it may be discharged anyway. Even include last month’s utilities.
10) How do I qualify for bankruptcy? Can I not be approved? You qualify for bankruptcy if either your outgo exceeds your income or your liabilities exceed your assets. If you don't qualify, we will tell you when we type up the bankruptcy. You basically have to be a US citizen, reside in the state you file in, and not have filed within certain time periods (you can’t file two Chapter 7s within 8 years of each other).
11) What if the Court does not approve my Chapter 13 or Chapter 7? If there is anything wrong with your Chapter 13 or Chapter 7 bankruptcy it will usually be changed and amended. Of course, it is less costly and time-consuming to do it right the first time. If you earn so much money that you can afford a Chapter 13, you will be forced to change it from a Chapter 7 to a Chapter 13. Repayment plans often are amended.
12) How often can I file? You can file a Chapter 7 8 years after you filed your last Chapter 7 the time used to be 6 before 10-2005. The time is measured from the time of filing your first case to the time of filing of your second case. You can file Chapter 13s 2 years after a Chapter 13 discharge. You can file a Chapter 7 4 years after a Chapter 13. You can only have one bankruptcy going on at a time.
13) If I file does it mean my old bad debts are erased from my credit report? NO! What is reported is that you had a debt and that a bankruptcy was filed. Bankruptcy does not give you a good credit record or “repair” your credit record automatically. You repair your credit by paying your debts on time after the bankruptcy.
14) Can I file without an Attorney? Yes. You can file a bankruptcy yourself, and this is called “filing pro se”. You can also do dentistry on yourself, but we wouldn’t recommend it.. Considering the time and risk involved, we recommend you use an Attorney. You may lose far more in Court than what the Attorney would have cost—plus there is the extra time and effort on your part doing the work.
15) What about a Bankruptcy Mill? Filing a bankruptcy through a Bankruptcy Mill or paralegal may be even worse than doing it yourself and they often charge as much as the attorney. Many people have lost thousands of dollars with these businesses—through intentional scams or just plain bad work. Non-Attorney bankruptcy petition preparers are barred by law from providing you with any legal advice. In enacting legislation governing bankruptcy petition preparers, Congress stated: “These preparers lack the necessary legal training and ethics regulation to provide [legal advice and legal services] in an adequate and appropriate manner. These services may take unfair advantage of persons who are ignorant of their rights both inside and outside the bankruptcy system.” The bankruptcy petition preparer's role is limited by law solely to typing. Unlike an Attorney, a bankruptcy petition preparer cannot help you understand the law, advise you how to answer questions, assist you in planning, or be in Court. Federal law requires that bankruptcy petition preparers sign any documents they prepare; print on the document their name, address, and social security number; and furnish you with a copy of the document. A bankruptcy petition preparer may not sign any document on your behalf, may not use the word “legal” or any similar term in any advertisement, and may not receive any payment from you for Court fees. The bankruptcy petition preparer is also required to disclose to the Court the amount of any fee you pay. Beware of any bankruptcy petition preparer who does not comply with these requirements.
16) How much do you charge? We charge a flat fee of about $1,000 for doing a personal uncontested Chapter 7 bankruptcy. Court costs are $300. Your total cost is $1400 including credit counseling. Chapter 13 Court costs are $275. We charge a flat fee of about $2,000 for doing a Chapter 13 bankruptcy.
17) Can I pay you in payments?. For a Chapter 7, our filing fee must be paid before we file the petition. For a Chapter 13, you only need to pay the filing fee before we file the petition—sometimes, in an emergency, even the filing fee can be paid in payments to the Court. Our attorney fee is often paid by post dated checks or installments.
18) What paperwork do I need to bring to my Attorney? Bring the names, amounts, account numbers and proper addresses of all of your Creditors. You may estimate the amounts. Credit bureau reports normally don't have the addresses on them.
19) How can I get a copy of my credit report? You can get a free credit report if you have been denied credit, are unemployed, are a victim of fraud, or are on welfare.
To get one free (if you qualify) or for a small fee (if you don't) without going through a "middle man" just contact any of the 3 major reporting services below. They will charge you between $3.00 and $8.50 depending on your state of residence.
1. Experian (TRW) at 1 888 EXPERIAN (1 888 397 3742) allows you to charge your credit report to your Visa or MasterCard over the phone.
2. Trans Union at 1-800-888-4213 or write to: Trans Union Corporation Consumer Disclosure Center, P.O. Box 390, Springfield, PA 19064-0390
3. Equifax at 1-800-685-1111 or write to: Equifax Information Service Center P.O. Box 740241 Atlanta, GA 30374-0241. For $8, you can get an immediate report online from Equifax at: http://equifax.com/resources/fcra_info_rights.html
If you decide to write to any of these services, be sure to include your: name, address, phone number, previous addresses for the past two years, social security number, birth date, employer, signature—and be sure to include your payment. (You'll have to call to get the payment amount.) Proof of identity such as a photo copy of your driver’s license will also be required. Normally you are better off if you just pay for the report.
20) Can I file jointly with my spouse? Does my spouse have to file or sign if I want to file individually? Yes, you can file jointly. No, your spouse doesn't have to file but, if most of your debts are joint debts, he or she may want to. There is no need for a spouse to file if the debts are not in his or her name. If you are filing a Chapter 7, and the bills are also in your spouse’s name, he or she generally should file to be protected. (Co-signers are protected in a 13 with 100% plans, but are not in a Chapter 7.) There should be no additional charge for a spouse filing, but some firms charge extra. The only extra work to do in a joint filing is adding an additional name and social security number to the petition.
.
Dunne Law Offices, P.C.
(215) 854-6342
1500 JFK Blvd, Two Penn Center, Suite 200
Philadelphia, PA 19102
dunnelawoffices@gmail.com
www.dunnelawoffices.com
Thursday, May 14, 2009
FREQUENTLY ASKED QUESTIONS
FREQUENTLY ASKED QUESTIONS
1) Should I file Bankruptcy? A person should file a bankruptcy if, and only if, he or she can’t pay bills as they come due or is about to lose property or have property attached by the Court. Very few people lose any property when they file bankruptcy. In Pennsylvania, you are allowed to keep $3,225 equity in a car, $10,775 in personal household goods, $20,200 in a home, and at least $1,000 in any property that you choose in a general exemption plus ½ of the unused portion of the home exemption. For married couples, filing jointly, these exemptions are doubled. In a Chapter 13, the property that can be kept is just about unlimited as the plan pays at least what a Chapter 7 would pay. Filing a bankruptcy is generally better than having a foreclosure on your credit record. A person will often be able to rebuild credit and buy a house within 2 years after a bankruptcy. A repossession can do more damage to your credit and it may take much longer to recover. Government regulations may forever keep you from financing a home with the VA or FHA if you have a repossession for a home, but allows financing 2 years after bankruptcy. Only 7 magical items may not be bankrupted: Child Support and Alimony; taxes less than 3 years old; federally guaranteed student loans; debts due to fraud; debts due to drunk driving; debts due to intentional injuries; and criminal restitution.
2) What does it cost to file bankruptcy? Court costs are about $299 for a Chapter 7 and $274 for a Chapter 13. Chapter 7 attorney fees at our office will run about $1,500 plus any expenses and Chapter 13 attorney fees will run about $3,000 plus any filing fees.
3) What happens when I file? When you file a bankruptcy, a Court order goes into effect immediately stopping all collection activity. This includes stopping foreclosures, attachments, garnishments, and Creditors calling you. The sooner you come in to the law office, the sooner you can get relief—and the more you can save from Creditors. You will have a 341 hearing within about 4 to 6 weeks after the bankruptcy is filed. When the bankruptcy is finally over, a discharge is issued. This is a final and permanent order to stop all collection activity and declaring the debts to be non collectable. Bankruptcy does not normally get rid of a security interest that you gave to a Creditor such as a mortgage or a standard car lien, but it does make you not liable for the debt.
4) Which bankruptcy is right for me: Chapter 13 or Chapter 7? A Chapter 13 is like a bill consolidation loan, and you normally file it to keep property and stop foreclosures. A Chapter 7 is used to completely wipe out unsecured debts and to get rid of secured debts for property you don't want to keep. Both will stop garnishments and Creditor harassment. If you earn more than the average wage for your state and size of family you will normally be required to file a Chapter 13. Usually, the only times you will want to file a Chapter 13 are 1) when you have already filed a Chapter 7 and can't file another one or 2) if you have so much property and equity that a Chapter 13 is necessary to keep that property. You may have to file a Chapter 13 if you have so much income (after you pay your normal monthly living expenses) that you can repay something to your debts. A Chapter 13 can repay child support, repay student loans, or protect a co-signer. The fortunate thing about virtually all Chapter 7 cases is that the Debtor’s assets are normally exempt, so there are rarely any assets to liquidate. Married couples with valuable assets, such as over $40,000 in equity for a home or over $7000 equity in cars (these amounts are for Pennsylvania), may want to choose Chapter 13.
5) Why file a Chapter 7? If you have substantial unsecured debts you may want to file a Chapter 7. You may also want to file a Chapter 7 if you want to surrender property and not owe for it. You can usually keep all your property in a Chapter 7, because you won't have enough equity in any property to exceed the exemptions allowed.
6) Why file a Chapter 13? You may want to file a Chapter 13 if you have secured debts and are threatened with foreclosure or repossession, if you filed a Chapter 7 less than 6 years ago, if you wish to protect your cosigner, or if you have debts that are not dischargeable in a Chapter 7 but are payable in a Chapter 13. Child support can be paid first in a Chapter 13 before secured creditors giving you the advantage of not losing a car or property but having all of your payments go to child support at the start of the case.
7) Can I convert from a Chapter 13 to a 7 or from a 7 to a 13? Yes they can be converted. Few people convert from a 7 to a 13. However if you earn over $60-$70,000 you have a strong chance that the US attorney’s office will file a 707 b motion that may force you into a 13. If you file a Chapter 13 you have a good chance that you will have to convert from a 13 to a 7. Over 3-5 years, you are very likely to miss payments and have the Chapter 13 dismissed (or have to re-file). Some Chapter 13 cases are never finished and are converted into Chapter 7 cases. If you are close to completing the plan, you may be granted a hardship discharge. Plans can also be later modified if incomes change.
8) How long will bankruptcy take? It will take about 3 to 4 months for a Chapter 7 to be final. (You will get a letter within 10 days of filing, telling you the time and date of the 341 hearing. This hearing will be held about 4 to 6 weeks after you file.) A Chapter 13 will take as long as the repayment plan takes, usually from 36 to 60 months.
9) What are the most common mistakes I can make when filing? Not showing up for your hearing and not listing all of your debts. Fail to show up at the hearing, and your case is dismissed. Fail to list a debt, and you continue to owe it. Also people often have too much in a checking account when they file or a tax refund coming. The best policy is to list all your debts and assets. Always list every debt, even if you think it is non-dischargeable, it may be discharged anyway. Even include last month’s utilities.
10) How do I qualify for bankruptcy? Can I not be approved? You qualify for bankruptcy if either your outgo exceeds your income or your liabilities exceed your assets. If you don't qualify, we will tell you when we type up the bankruptcy. You basically have to be a US citizen, reside in the state you file in, and not have filed within certain time periods (you can’t file two Chapter 7s within 8 years of each other).
11) What if the Court does not approve my Chapter 13 or Chapter 7? If there is anything wrong with your Chapter 13 or Chapter 7 bankruptcy it will usually be changed and amended. Of course, it is less costly and time-consuming to do it right the first time. If you earn so much money that you can afford a Chapter 13, you will be forced to change it from a Chapter 7 to a Chapter 13. Repayment plans often are amended.
12) How often can I file? You can file a Chapter 7 8 years after you filed your last Chapter 7 the time used to be 6 before 10-2005. The time is measured from the time of filing your first case to the time of filing of your second case. You can file Chapter 13s 2 years after a Chapter 13 discharge. You can file a Chapter 7 4 years after a Chapter 13. You can only have one bankruptcy going on at a time.
13) If I file does it mean my old bad debts are erased from my credit report? NO! What is reported is that you had a debt and that a bankruptcy was filed. Bankruptcy does not give you a good credit record or “repair” your credit record automatically. You repair your credit by paying your debts on time after the bankruptcy.
14) Can I file without an Attorney? Yes. You can file a bankruptcy yourself, and this is called “filing pro se”. You can also do dentistry on yourself, but we wouldn’t recommend it.. Considering the time and risk involved, we recommend you use an Attorney. You may lose far more in Court than what the Attorney would have cost—plus there is the extra time and effort on your part doing the work.
15) What about a Bankruptcy Mill? Filing a bankruptcy through a Bankruptcy Mill or paralegal may be even worse than doing it yourself and they often charge as much as the attorney. Many people have lost thousands of dollars with these businesses—through intentional scams or just plain bad work. Non-Attorney bankruptcy petition preparers are barred by law from providing you with any legal advice. In enacting legislation governing bankruptcy petition preparers, Congress stated: “These preparers lack the necessary legal training and ethics regulation to provide [legal advice and legal services] in an adequate and appropriate manner. These services may take unfair advantage of persons who are ignorant of their rights both inside and outside the bankruptcy system.” The bankruptcy petition preparer's role is limited by law solely to typing. Unlike an Attorney, a bankruptcy petition preparer cannot help you understand the law, advise you how to answer questions, assist you in planning, or be in Court. Federal law requires that bankruptcy petition preparers sign any documents they prepare; print on the document their name, address, and social security number; and furnish you with a copy of the document. A bankruptcy petition preparer may not sign any document on your behalf, may not use the word “legal” or any similar term in any advertisement, and may not receive any payment from you for Court fees. The bankruptcy petition preparer is also required to disclose to the Court the amount of any fee you pay. Beware of any bankruptcy petition preparer who does not comply with these requirements.
16) How much do you charge? We charge a flat fee of about $1,000 for doing a personal uncontested Chapter 7 bankruptcy. Court costs are $300. Your total cost is $1400 including credit counseling. Chapter 13 Court costs are $275. We charge a flat fee of about $2,000 for doing a Chapter 13 bankruptcy.
17) Can I pay you in payments?. For a Chapter 7, our filing fee must be paid before we file the petition. For a Chapter 13, you only need to pay the filing fee before we file the petition—sometimes, in an emergency, even the filing fee can be paid in payments to the Court. Our attorney fee is often paid by post dated checks or installments.
18) What paperwork do I need to bring to my Attorney? Bring the names, amounts, account numbers and proper addresses of all of your Creditors. You may estimate the amounts. Credit bureau reports normally don't have the addresses on them.
19) How can I get a copy of my credit report? You can get a free credit report if you have been denied credit, are unemployed, are a victim of fraud, or are on welfare.
To get one free (if you qualify) or for a small fee (if you don't) without going through a "middle man" just contact any of the 3 major reporting services below. They will charge you between $3.00 and $8.50 depending on your state of residence.
1. Experian (TRW) at 1 888 EXPERIAN (1 888 397 3742) allows you to charge your credit report to your Visa or MasterCard over the phone.
2. Trans Union at 1-800-888-4213 or write to: Trans Union Corporation Consumer Disclosure Center, P.O. Box 390, Springfield, PA 19064-0390
3. Equifax at 1-800-685-1111 or write to: Equifax Information Service Center P.O. Box 740241 Atlanta, GA 30374-0241. For $8, you can get an immediate report online from Equifax at: http://equifax.com/resources/fcra_info_rights.html
If you decide to write to any of these services, be sure to include your: name, address, phone number, previous addresses for the past two years, social security number, birth date, employer, signature—and be sure to include your payment. (You'll have to call to get the payment amount.) Proof of identity such as a photo copy of your driver’s license will also be required. Normally you are better off if you just pay for the report.
20) Can I file jointly with my spouse? Does my spouse have to file or sign if I want to file individually? Yes, you can file jointly. No, your spouse doesn't have to file but, if most of your debts are joint debts, he or she may want to. There is no need for a spouse to file if the debts are not in his or her name. If you are filing a Chapter 7, and the bills are also in your spouse’s name, he or she generally should file to be protected. (Co-signers are protected in a 13 with 100% plans, but are not in a Chapter 7.) There should be no additional charge for a spouse filing, but some firms charge extra. The only extra work to do in a joint filing is adding an additional name and social security number to the petition.
.
Dunne Law Offices, P.C.
(215) 854-6342
1500 JFK Blvd, Two Penn Center, Suite 200
Philadelphia, PA 19102
dunnelawoffices@gmail.com
www.dunnelawoffices.com
The Means Test Calculator
The NOLO website has a very helpful Means Test Calculator on the following website:
www.legalconsumer.com/bankruptcy
The Means Test Calculator applies the formulas, regional income and expense standards, and calculations of the new "means test" that was a cornerstone of BAPCPA, the bankruptcy law (11 U.S.C. 707(b)). It uses the language and formatting of Official Form 22A -- one of several forms you would need to complete if you decide to file for bankruptcy.
Dunne Law Offices, P.C.
(215) 854-6342
1500 JFK Blvd, Two Penn Center, Suite 200
Philadelphia, PA 19102
dunnelawoffices@gmail.com
www.dunnelawoffices.com
The Means Test Calculator
The NOLO website has a very helpful Means Test Calculator on the following website:
www.legalconsumer.com/bankruptcy
The Means Test Calculator applies the formulas, regional income and expense standards, and calculations of the new "means test" that was a cornerstone of BAPCPA, the bankruptcy law (11 U.S.C. 707(b)). It uses the language and formatting of Official Form 22A -- one of several forms you would need to complete if you decide to file for bankruptcy.
Dunne Law Offices, P.C.
(215) 854-6342
1500 JFK Blvd, Two Penn Center, Suite 200
Philadelphia, PA 19102
dunnelawoffices@gmail.com
www.dunnelawoffices.com
Tuesday, May 12, 2009
Your Legal Rights During and After Bankruptcy
Making the Most of Your Bankruptcy Discharge
Bankruptcy is a choice that may help if you are facing serious financial problems. You may be able to cancel your debts, stop collection calls, and get a fresh financial start. Although bankruptcy can help with some financial problems, its effects are not permanent. If you choose bankruptcy, you should take advantage of the fresh start it offers and then make careful decisions about future borrowing and credit, so you won’t ever need to file bankruptcy again!
How Long Will Bankruptcy Stay on My Credit Report?
The results of your bankruptcy case will be part of your credit record for ten (10) years. The ten years are counted from the date you filed your bankruptcy.
This does not mean you can’t get a house, a car, a loan, or a credit card for ten years. In fact, you can probably get credit even before your bankruptcy is over! The question is, how much interest and fees will you have to pay? And, can you afford your monthly payments, so you don’t begin a new cycle of painful financial problems.
Which Debts Do I Still Owe After Bankruptcy?
When your bankruptcy is completed, many of your debts are “discharged.” This means they are canceled and you are no longer legally obligated to pay them.
However, certain types of debts are NOT discharged in bankruptcy.
The following debts are among the debts that generally may not be canceled by bankruptcy:
* Alimony, maintenance or support for a spouse or children.
* Student loans. Almost no student loans are canceled by bankruptcy. But you can ask the court to discharge the loans if you can prove that paying them is an “undue hardship.” Occasionally, student loans can be canceled for reasons not related to your bankruptcy when, for example, the school closed before you completed the program or if you have become disabled. There are also many options for reducing your monthly payments on student loans, even if you can’t discharge them.
* Money borrowed by fraud or false pretenses. A creditor may try to prove in court during your bankruptcy case that you lied or defrauded them, so that your debt cannot be discharged. A few creditors (mainly credit card companies) accuse debtors of fraud even when they have done nothing wrong. Their goal is to scare honest families so that they agree to reaffirm the debt. You should never agree to reaffirm a debt if you have done nothing wrong. If the company files a fraud case and you win, the court may order the company to pay your lawyer’s fees
* Most taxes. The vast majority of tax debts cannot be discharged. However, this can be a complicated issue. If you have tax debts you will need to discuss these issues with your lawyer.
* Most criminal fines, penalties and restitution orders. This exception includes even minor fines, including traffic tickets.
* Drunk driving injury claims.
If you have debts that may not be discharged, you should discuss with your lawyer whether filing or converting to a chapter 13 may help.
Do I Still Owe Secured Debts (Mortgages, Car Loans) After Bankruptcy?
Yes and No. The term “secured debt” applies when you give the lender a mortgage, deed of trust or lien on property as collateral for a loan. The most common types of secured debts are home mortgages and car loans. The treatment of secured debts after bankruptcy can be confusing.
Bankruptcy cancels your personal legal obligation to pay a debt, even a secured debt. This means the secured creditor can’t sue you after a bankruptcy to collect the money you owe.
But, and this is a big “but,” the creditor can still take back their collateral if you don’t pay the debt. For example, if you are behind on a car loan or home mortgage, the creditor can ask the bankruptcy court for permission to repossess your car or foreclose on the home. Or the creditor can just wait until your bankruptcy is over and then do so. Although a secured creditor can’t sue you if you don’t pay, that creditor can usually take back the collateral.
For this reason, if you want to keep property that is collateral for a secured debt, you will need to catch up on the payments and continue to make them during and after bankruptcy, keep any required insurance, and you may have to reaffirm the loan.
What Is Reaffirmation?
Although you filed bankruptcy to cancel your debts, you have the option to sign a written agreement to “reaffirm” a debt. If you choose to reaffirm, you agree to be legally obligated to pay the debt despite bankruptcy. If you reaffirm, the debt is not canceled by bankruptcy. If you fall behind on a reaffirmed debt, you can get collection calls, be sued, and possibly have your pay attached or other property taken.
Reaffirming a debt is a serious matter. You should never agree to a reaffirmation without a very good reason.
Do I Have to Reaffirm Any Debts?
No. Reaffirmation is always optional. It is not required by bankruptcy law or any other law. If a creditor tries to pressure you to reaffirm, remember you can always say no.
Can I Change My Mind After I Reaffirm a Debt?
Yes. You can cancel any reaffirmation agreement for sixty (60) days after it is filed with the court. You can also cancel at any time before your discharge order. To cancel a reaffirmation agreement, you must notify the creditor in writing. You do not have to give a reason. Once you have canceled, the creditor must return any payments you made on the agreement.
Also, remember that a reaffirmation agreement has to be in writing, has to be signed by your lawyer or approved by the judge, and has to be made before your bankruptcy is over. Any other reaffirmation agreement is not valid.
Do I Have to Reaffirm on the Same Terms?
No. A reaffirmation is a new contract between you and the lender. You should try to get the creditor to agree to better terms such as a lower balance or interest rate. You can also try to negotiate a reduction in the amount you owe. The lender may refuse but it is always worth a try.
Should I Reaffirm?
If you are thinking about reaffirming, the first question should always be whether you can afford the monthly payments. Reaffirming any debt means that you are agreeing to make the payments every month, and to face the consequences if you don’t.
If you have any doubts whether you can afford the payments, do not reaffirm. Caution is always a good idea when you are giving up your right to have a debt canceled.
Before reaffirming, always consider your other options. For example, instead of reaffirming a car loan you can’t afford, can you get by with a less costly used car for a while?
Some offers to reaffirm may seem attractive at first. Let’s say a department store lets you keep your credit card if you reaffirm $1000 out of the $2000 you owed before bankruptcy. They say it will cost you only $25 per month and they will also give you a $500 line of credit for new purchases. What they might not tell you is that they will give you a new credit card in a few months even if you do not reaffirm. More importantly, though, you should understand that you are agreeing to repay $1000 plus interest that the law says you can have legally canceled. This is a big price to pay for $500 in new credit.
Do I Have Other Options for Secured Debts?
You may be able to keep the collateral on a secured debt by paying the creditor in a lump sum the amount the item is worth rather than what you owe on the loan. This is your right under the bankruptcy law to “redeem” the collateral.
Redeeming collateral can save you hundreds of dollars. Since furniture, appliances and other household goods go down in value quickly once they are used, you may redeem them for a lot less than their original cost or what you owe on the account.
You may have another option if the creditor did not loan you the money to buy the collateral, like when a creditor takes a lien on household goods you already have. You may be able to ask the court to “avoid” this kind of lien. This will make the debt unsecured.
Do I Have to Reaffirm Car Loans, Home Mortgages?
If you are behind on a car loan or a home mortgage and you can afford to catch up, you can reaffirm and possibly keep your car or home. If the lender agrees to give you the time you need to get caught up on a default, this may be a good reason to reaffirm. But if you were having trouble staying current with your payments before bankruptcy and your situation has not improved, reaffirmation may be a mistake. The collateral is likely to be repossessed or foreclosed anyway after bankruptcy, because your obligation to make payments continues. If you have reaffirmed, you could then be required to pay the difference between what the collateral is sold for and what you owe.
If you are up to date on your loan, you may not need to reaffirm to keep your car or home. Some lenders will let you keep your property without signing a reaffirmation as long as you continue to make your payments. In some parts of the country, you have this as a legal right. Check with your lawyer.
And What About Credit Cards and Department Store Cards?
It is almost never a good idea to reaffirm a credit card. Reaffirming means you will pay bills that your bankruptcy would normally wipe out. That can be a very high price to pay for the convenience of a credit card. Try paying cash for a while. Then in a few years, you can probably get a new credit card, that won’t come with a large unpaid balance!
If you do reaffirm, try to get something in return, like a lower balance, no interest on the balance, or a reasonable interest rate on any new credit. Don’t be stuck paying 18-21 percent or higher!
Some department store credit cards may be secured. The things you buy with the credit card may be collateral. The store might tell you that they will repossess what you bought, such as a TV, VCR, or sofa, if you do not reaffirm the debt. Most of the time, stores will not repossess used merchandise. So, after a bankruptcy, it is much less likely that a department store would repossess “collateral” than a car lender.
However, repossession is possible. You have to decide how important the item is to you or your family. If you can replace it cheaply or live without it, then you should not reaffirm. You can still shop at the store by paying cash, and the store may offer you a new credit card even if you don’t reaffirm. (Just make sure that your old balance is not added into the new account.)
For Example:
Some offers to reaffirm may seem attractive at first. Let’s say a department store lets you keep your credit card if you reaffirm $1000 out of the $2000 you owed before bankruptcy. They say it will cost you only $25 per month and they will also give you a $500 line of credit for new purchases. What they might not tell you is that they will give you a new credit card in a few months even if you do not reaffirm. More importantly, though, you should understand that you are agreeing to repay $1000 plus interest that the law says you can have legally canceled. This is a big price to pay for $500 in new credit.
Using Credit Wisely After Bankruptcy
Beware of Credit Offers Aimed at Recent Bankruptcy Filers
“Disguised” Reaffirmation Agreement
Carefully read any credit card or other credit offer from a company that claims to represent a lender you listed in your bankruptcy or own a debt you discharged. This may be from a debt collection company that is trying to trick you into reaffirming a debt. The fine print of the credit offer or agreement will likely say that you will get new credit, but only if some or all of the balance from the discharged debt is added to the new account.
“Secured” Credit Card
Another type of credit marketed to recent bankruptcy filers as a good way to reestablish credit involves “secured” credit cards. These are cards where the balances are secured by a bank deposit. The card allows you a credit limit up to the amount you have on deposit in a particular bank account. If you can’t make the payments, you lose the money in the account. They may be useful to establish that you can make regular monthly payments on a credit card after you have had trouble in the past. But since almost everyone now gets unsecured credit card offers even after previous financial problems, there is less reason to consider allowing a creditor to use your bank deposits as collateral. It is preferable not to tie up your bank account.
Credit Repair Companies
Beware of companies that claim: “We can erase bad credit.” These companies rarely offer valuable services for what they charge, and are often an outright scam. The truth is that no one can erase bad credit information from your report if it is accurate. And if there is old or inaccurate information on your credit report, you can correct it yourself for free.
Avoid High Cost Predatory Lenders
Don’t assume that because you filed bankruptcy you will have to get credit on the worst terms. If you can’t get credit on decent terms right after bankruptcy, it may be better to wait. Most lenders will not hold the bankruptcy against you if after a few years you can show that you have avoided problems and can manage your debts.
Be wary of auto dealers, mortgage brokers and lenders who advertise: “Bankruptcy? Bad Credit? No Credit? No Problem!” They may give you a loan after bankruptcy, but at a very high cost. The extra costs and fees on these loans can make it impossible for you to keep up the loan payments. Getting this kind of loan can ruin your chances to rebuild your credit.
Mortgage Loans
If you own your home, some home improvement contractors, loan brokers and mortgage lenders may offer to give you a home equity loan despite your credit history. These loans can be very costly and can lead to serious financial problems and even the loss of your home. Avoid mortgage lenders that:
* Charge excessive interest rates, “points,” brokers’ fees and other closing costs;
* Require that you refinance your current lower interest mortgage or pay off other debts;
* Add on unnecessary and costly products, like credit insurance;
* Make false claims of low monthly payments based on a “teaser” variable interest rate;
* Include a “balloon” payment term that requires you to pay all or most of the loan amount in a lump sum as the last payment;
* Charge a prepayment penalty if you pay off the loan early;
* Change the terms at closing;
* Make false promises that the rate will be reduced later if you make timely payments ;
* Pressure you to keep refinancing the loan for no good reason once you get it.
Small Loans
It is always best to save some money to cover unexpected expenses so you can avoid borrowing. But if you are in need of a small loan, avoid the following high cost loans:
Payday loans
Some “check cashers” and finance companies offer to take a personal check from you and hold it without cashing it for one or two weeks. In return, they will give you an amount of cash that is less than the amount of your check. The difference between the amount of your check and the cash you get back in return is interest that the lender is charging you. These payday loans are very costly. For example, if you write a $256 check and the lender gives you $200 back as a loan for two weeks, the $56 you pay equals a 728-percent interest rate! And if you don’t have the money to cover the check, the lender will either sue you or try to get you to write another check in a larger amount. If you choose to write another check, the lender gets more money from you and you get further into debt.
Auto title loans
For many years, pawn shops have made small high-interest loans in exchange for property. A new type of “pawn” is being made by title lenders who will give you a small loan at very high-interest rates (from 200 percent to 800 percent) if you let them hold your car title as collateral for the loan. If you fall behind on the payments, the lender can repossess your car and sell it.
Rent-to-own
By renting a TV, furniture or appliance from a rent-to-own company, you will often pay three or four times more than what it would cost to buy. The company may make even more profit on you because the item you are buying may be previously used and returned. And if you miss a payment, the company may repossess the item leaving with you no credit for the payments you made.
Tax refund anticipation loans
Some tax return preparers offer to provide an “instant” tax refund by arranging for loans based on the expected refund. The loan is for a very short period of time between when the return is filed and when you would expect to get your refund. Like other short-term loans, the fees may seem small but amount to an annual interest rate of 200 percent or more. It is best to patient and wait for the refund.
What You Can Do to Avoid Problems
* If you don’t want it, don’t get it. If you have doubts about whether you really need the loan or service, or whether you can afford it, don’t let yourself get talked into it by a salesperson using high-pressure tactics. You can always walk away from a bad deal, even at the last minute.
* Shop around. You may qualify for a loan with normal rates from a reputable bank or credit union. Don’t forget that high-cost lenders are counting on your belief that you cannot get credit on better terms elsewhere. Do not let feelings of embarrassment about your past problems stop you from shopping around for the best credit terms.
* Compare credit terms. Do not consider just the monthly payment. Compare the interest rate by looking at the “annual percentage rate,” as this takes into account other fees and finance charges added on the loan. Make sure you know exactly what fees are being charged for credit and why.
* Read before you sign. If you have questions, get help from a qualified professional to review the paperwork. A lender that will not let you get outside help should not be trusted.
* If you give a lender a mortgage in a refinancing deal, remember your cancellation rights. In home mortgage refinancings, federal law gives you a right to cancel for three days after you sign the papers. Exercise these rights if you feel you signed loan papers and got a bad deal. Don’t let the lender talk you out of cancelling.
* Get help early. If you begin to have financial problems, or you are thinking of consolidating unmanageable debts, get help first from a local non-profit housing or debt counseling agency.Dunne Law Offices, P.C.
(215) 854-6342
1500 JFK Blvd, Two Penn Center, Suite 200
Philadelphia, PA 19102
dunnelawoffices@gmail.com
www.dunnelawoffices.com
Credit Cards and Bankruptcy
1. Don’t apply for a credit card until you are ready.
Unfortunately, bankruptcy may not have permanently resolved all of your financial problems. It is a bad idea to apply for new credit before you can afford it.
2. Avoid accepting too many offers.
There is rarely a good reason to have more than one or two credit cards. Having too much credit can lead to bad decisions and unmanageable debts, and it will lower your credit rating. This can make it harder for you to get other lower interest rate loans. Avoid accepting a credit card just to get a discount at a store or a “free” gift.
3. Remember that lenders are looking for people who run up big balances, because those consumers pay the most interest.
You may find that credit card companies are pursuing you aggressively by mail and phone even though you filed bankruptcy. Do not view this as a sign that you can afford more credit. The lender may have a marketing profile telling them you are someone who is likely to carry a big credit card balance and pay a good deal of interest. Or they may see you as a good credit risk because you cannot file a Chapter 7 bankruptcy again for quite a few years.
4. Interest rate is important in choosing a card but not the only consideration.
You should always try to get a card with an interest rate as low as possible. But it is rarely a good idea to take a new card just because of a low rate. The rate only matters if you carry a balance from month to month. Also, the rate can easily change, with or without a reason. Remember that even the best credit cards are expensive unless you pay your balance in full every month. And other credit terms can add to your cost, like annual fees, late charges, over-the-limit fees, account set-up fees, cash advance fees, and the method of calculating balances. Sometimes a credit card that appears cheaper is actually more expensive.
5. Beware of temporary “teaser” rates. A teaser rate is an artificially low initial rate that applies only for a limited time.
Most teaser rates are good only for six months or less. After that, the rate automatically goes up. Remember that, if you build up a balance under the teaser rate, the much higher permanent rate will apply when you repay the bill. This means that the permanent long-term rate on the card is much more important than the temporary rate.
6. If your rate is variable, understand how it may change.
Variable interest rates can be very confusing. Some variable rate terms can make your rate go up steeply over time. Read the credit contract to understand how and when your rate may change. And don’t be misled by advertisements that claim “fixed rate,” as his may mean the rate is fixed only until the lender decides to change it again.
7. Check terms related to late payment charges and penalty rates of interest.
Most credit card contracts have terms in the small print for late charges or penalty interest rates that increase if you make even a single late payment. Try to avoid cards with late fees as high as $25–$35 or penalty interest rates of 21–24 percent or higher. Even if you are not having financial problems, these terms may become important, because they apply equally to accidental late payments.
8. Get a card with a grace period and learn the billing method.
It is important to understand how you will be billed. Look for a card with a grace period that lets you pay off the balance each month without interest. If the card does not have a grace period and interest will apply from the date of your purchase, a low interest rate may actually be higher than it looks. The terms of the grace period are also important, as it may not apply to balance transfers and cash advances. And look out for different interest rates that may apply depending upon the type of charge: these usually include a higher rate for cash advances.
9. Don’t accept a card just because you qualify for a high credit limit.
It is easy to assume that because a card offer includes a high credit limit, this means the lender thinks you can afford more credit. In fact, the opposite may be true. Lenders often give high credit limits to consumers hoping that they think will carry a bigger balance and pay more interest. You must evaluate whether you can afford more credit based on your individual circumstances.
10. Always read both the disclosures and the credit contract.
You will find disclosures about the terms of a credit card offer, usually in small print on the reverse or at the bottom of the offer. Review these carefully. However, the law does not require that all relevant information be disclosed. For this reason, you must also read your credit contract, which comes with the card. This will include terms such as late payment fees, default rates of interest, and a description of the billing method. Since these terms are not easy to understand, you may want to call the lender for an explanation. Or better yet, refuse credit with too many complex provisions, because those terms are likely to work to your disadvantage.
Ten Things to Think About Before Using Your Credit Card
1. Establish a realistic budget.
Before using a credit card after bankruptcy, try paying cash for a while. This will help you learn how much money you need each month to pay the basic necessities. Don’t forget to budget for the payments on any debts you reaffirmed in your bankruptcy.
2. It is important not to use credit cards to make up for a budget shortfall.
Credit card debt is expensive. Sometimes credit cards are so easy to use that people forget they are loans. Be sure to charge only things you really need and plan to pay the balance off in full each month. If you find you are constantly using your card without being able to pay the bill in full each month, you need to consider that you are using cards to finance an unaffordable lifestyle.
3. If you get into financial trouble, do not make it worse by using credit cards to make ends meet.
If you find that you are using credit cards to get through a period of financial difficulty, it is likely that additional credit will only make things worse. For example, if you use cash advances on your credit card to pay bills, the interest due will only add to your debt burden sooner rather than later.
4. Don’t get hooked on minimum payments.
Credit card lenders usually offer an optional “minimum payment” in their monthly billing. These are usually set very low (usually 2 percent of the balance), barely covering the monthly interest charge. If you pay only the minimum, chances are that you will be paying your debt very slowly or not at all, and you may think you are managing the debt when you are really getting in over your head. For example, if you make only the monthly minimum payments to pay off a $1000 balance at a 17 percent interest rate, it will take over 7 years to pay your debt! If you are also making new purchases every month while making minimum payments, your debt will grow and take even longer to pay off. This means that your monthly interest obligations will increase and you will have less money in the monthly budget for necessities.
5. Don’t run up the balance based on a temporary “teaser” interest rate.
Money borrowed during a temporary rate period of 6 percent is likely to be paid back at a much higher permanent rate of 15 percent or more. Also be careful about juggling cards to take advantage of teaser rates and balance transfer options. It takes a great deal of time and effort to take advantage of terms designed to be temporary. Remember that all teaser rate offers are designed to get you locked into the higher rate for the long term, because that is how the lender makes the most money.
6. Avoid the special services and programs credit card lenders offer to bill to your card.
You are likely to get many mail offers and telemarketer calls from your credit card lender about special services such as credit card fraud protection plans, credit report protection, travel clubs, life and unemployment insurance, and other similar offers. These products are generally overpriced. It is best to throw out and refuse these offers, or at a minimum, treat them with a high degree of caution. And avoid “free trial” offers as you will be billed automatically if you forget to cancel the service.
7. If you can afford to do so, always make your credit card payments on time.
Be careful to avoid late payment charges and penalty rates if you can do so while still paying higher priority debts. Bad problems get worse fast when you have a new higher interest rate and late charge to pay during a time of financial difficulty. Most lenders will waive a late charge or default interest rate one time only. It is worth calling to ask for a waiver if you make a late payment accidentally or with a good excuse.
8. Know exactly when the grace period ends.
The grace period usually ends on the payment “due date,” which may change every month. Many lenders do not mail bills until late in the grace period, so your payment may be due quite soon after you receive the bill. This also means that the grace period may be less than a full month, usually about 20-25 days. Some lenders are slow in posting payments or have strange rules about deadlines (like payments received after 10:00 a.m. on the due date are considered late). Try to mail your payment well before the due date so there will be no question it gets there on time. Paying credit cards on time not only saves you interest and late fees but is a good way to improve your credit rating after bankruptcy.
9. Beware of unsolicited increases by a credit card lender to your credit card limit.
Some lenders increase your credit limit even when you have not asked for more credit. Avoid using the full credit line as your debt can easily spiral out of control. And going over the credit limit even by a few dollars can be very costly as you will likely be charged an over-the-limit fee and a higher penalty interest rate.
10. If you do take a credit card and discover terms you do not like: Cancel!
You can always cancel any credit card at any time. Although you will be responsible for any balance due at the time of cancellation, you should not keep using a card after you discover that its terms are unfavorable.
Dunne Law Offices, P.C.
(215) 854-6342
1500 JFK Blvd, Two Penn Center, Suite 200
Philadelphia, PA 19102
dunnelawoffices@gmail.com
www.dunnelawoffices.com
Credit Cards and Bankruptcy
1. Don’t apply for a credit card until you are ready.
Unfortunately, bankruptcy may not have permanently resolved all of your financial problems. It is a bad idea to apply for new credit before you can afford it.
2. Avoid accepting too many offers.
There is rarely a good reason to have more than one or two credit cards. Having too much credit can lead to bad decisions and unmanageable debts, and it will lower your credit rating. This can make it harder for you to get other lower interest rate loans. Avoid accepting a credit card just to get a discount at a store or a “free” gift.
3. Remember that lenders are looking for people who run up big balances, because those consumers pay the most interest.
You may find that credit card companies are pursuing you aggressively by mail and phone even though you filed bankruptcy. Do not view this as a sign that you can afford more credit. The lender may have a marketing profile telling them you are someone who is likely to carry a big credit card balance and pay a good deal of interest. Or they may see you as a good credit risk because you cannot file a Chapter 7 bankruptcy again for quite a few years.
4. Interest rate is important in choosing a card but not the only consideration.
You should always try to get a card with an interest rate as low as possible. But it is rarely a good idea to take a new card just because of a low rate. The rate only matters if you carry a balance from month to month. Also, the rate can easily change, with or without a reason. Remember that even the best credit cards are expensive unless you pay your balance in full every month. And other credit terms can add to your cost, like annual fees, late charges, over-the-limit fees, account set-up fees, cash advance fees, and the method of calculating balances. Sometimes a credit card that appears cheaper is actually more expensive.
5. Beware of temporary “teaser” rates. A teaser rate is an artificially low initial rate that applies only for a limited time.
Most teaser rates are good only for six months or less. After that, the rate automatically goes up. Remember that, if you build up a balance under the teaser rate, the much higher permanent rate will apply when you repay the bill. This means that the permanent long-term rate on the card is much more important than the temporary rate.
6. If your rate is variable, understand how it may change.
Variable interest rates can be very confusing. Some variable rate terms can make your rate go up steeply over time. Read the credit contract to understand how and when your rate may change. And don’t be misled by advertisements that claim “fixed rate,” as his may mean the rate is fixed only until the lender decides to change it again.
7. Check terms related to late payment charges and penalty rates of interest.
Most credit card contracts have terms in the small print for late charges or penalty interest rates that increase if you make even a single late payment. Try to avoid cards with late fees as high as $25–$35 or penalty interest rates of 21–24 percent or higher. Even if you are not having financial problems, these terms may become important, because they apply equally to accidental late payments.
8. Get a card with a grace period and learn the billing method.
It is important to understand how you will be billed. Look for a card with a grace period that lets you pay off the balance each month without interest. If the card does not have a grace period and interest will apply from the date of your purchase, a low interest rate may actually be higher than it looks. The terms of the grace period are also important, as it may not apply to balance transfers and cash advances. And look out for different interest rates that may apply depending upon the type of charge: these usually include a higher rate for cash advances.
9. Don’t accept a card just because you qualify for a high credit limit.
It is easy to assume that because a card offer includes a high credit limit, this means the lender thinks you can afford more credit. In fact, the opposite may be true. Lenders often give high credit limits to consumers hoping that they think will carry a bigger balance and pay more interest. You must evaluate whether you can afford more credit based on your individual circumstances.
10. Always read both the disclosures and the credit contract.
You will find disclosures about the terms of a credit card offer, usually in small print on the reverse or at the bottom of the offer. Review these carefully. However, the law does not require that all relevant information be disclosed. For this reason, you must also read your credit contract, which comes with the card. This will include terms such as late payment fees, default rates of interest, and a description of the billing method. Since these terms are not easy to understand, you may want to call the lender for an explanation. Or better yet, refuse credit with too many complex provisions, because those terms are likely to work to your disadvantage.
Ten Things to Think About Before Using Your Credit Card
1. Establish a realistic budget.
Before using a credit card after bankruptcy, try paying cash for a while. This will help you learn how much money you need each month to pay the basic necessities. Don’t forget to budget for the payments on any debts you reaffirmed in your bankruptcy.
2. It is important not to use credit cards to make up for a budget shortfall.
Credit card debt is expensive. Sometimes credit cards are so easy to use that people forget they are loans. Be sure to charge only things you really need and plan to pay the balance off in full each month. If you find you are constantly using your card without being able to pay the bill in full each month, you need to consider that you are using cards to finance an unaffordable lifestyle.
3. If you get into financial trouble, do not make it worse by using credit cards to make ends meet.
If you find that you are using credit cards to get through a period of financial difficulty, it is likely that additional credit will only make things worse. For example, if you use cash advances on your credit card to pay bills, the interest due will only add to your debt burden sooner rather than later.
4. Don’t get hooked on minimum payments.
Credit card lenders usually offer an optional “minimum payment” in their monthly billing. These are usually set very low (usually 2 percent of the balance), barely covering the monthly interest charge. If you pay only the minimum, chances are that you will be paying your debt very slowly or not at all, and you may think you are managing the debt when you are really getting in over your head. For example, if you make only the monthly minimum payments to pay off a $1000 balance at a 17 percent interest rate, it will take over 7 years to pay your debt! If you are also making new purchases every month while making minimum payments, your debt will grow and take even longer to pay off. This means that your monthly interest obligations will increase and you will have less money in the monthly budget for necessities.
5. Don’t run up the balance based on a temporary “teaser” interest rate.
Money borrowed during a temporary rate period of 6 percent is likely to be paid back at a much higher permanent rate of 15 percent or more. Also be careful about juggling cards to take advantage of teaser rates and balance transfer options. It takes a great deal of time and effort to take advantage of terms designed to be temporary. Remember that all teaser rate offers are designed to get you locked into the higher rate for the long term, because that is how the lender makes the most money.
6. Avoid the special services and programs credit card lenders offer to bill to your card.
You are likely to get many mail offers and telemarketer calls from your credit card lender about special services such as credit card fraud protection plans, credit report protection, travel clubs, life and unemployment insurance, and other similar offers. These products are generally overpriced. It is best to throw out and refuse these offers, or at a minimum, treat them with a high degree of caution. And avoid “free trial” offers as you will be billed automatically if you forget to cancel the service.
7. If you can afford to do so, always make your credit card payments on time.
Be careful to avoid late payment charges and penalty rates if you can do so while still paying higher priority debts. Bad problems get worse fast when you have a new higher interest rate and late charge to pay during a time of financial difficulty. Most lenders will waive a late charge or default interest rate one time only. It is worth calling to ask for a waiver if you make a late payment accidentally or with a good excuse.
8. Know exactly when the grace period ends.
The grace period usually ends on the payment “due date,” which may change every month. Many lenders do not mail bills until late in the grace period, so your payment may be due quite soon after you receive the bill. This also means that the grace period may be less than a full month, usually about 20-25 days. Some lenders are slow in posting payments or have strange rules about deadlines (like payments received after 10:00 a.m. on the due date are considered late). Try to mail your payment well before the due date so there will be no question it gets there on time. Paying credit cards on time not only saves you interest and late fees but is a good way to improve your credit rating after bankruptcy.
9. Beware of unsolicited increases by a credit card lender to your credit card limit.
Some lenders increase your credit limit even when you have not asked for more credit. Avoid using the full credit line as your debt can easily spiral out of control. And going over the credit limit even by a few dollars can be very costly as you will likely be charged an over-the-limit fee and a higher penalty interest rate.
10. If you do take a credit card and discover terms you do not like: Cancel!
You can always cancel any credit card at any time. Although you will be responsible for any balance due at the time of cancellation, you should not keep using a card after you discover that its terms are unfavorable.
Dunne Law Offices, P.C.
(215) 854-6342
1500 JFK Blvd, Two Penn Center, Suite 200
Philadelphia, PA 19102
dunnelawoffices@gmail.com
www.dunnelawoffices.com
Your Legal Rights During and After Bankruptcy
Making the Most of Your Bankruptcy Discharge
Bankruptcy is a choice that may help if you are facing serious financial problems. You may be able to cancel your debts, stop collection calls, and get a fresh financial start. Although bankruptcy can help with some financial problems, its effects are not permanent. If you choose bankruptcy, you should take advantage of the fresh start it offers and then make careful decisions about future borrowing and credit, so you won’t ever need to file bankruptcy again!
How Long Will Bankruptcy Stay on My Credit Report?
The results of your bankruptcy case will be part of your credit record for ten (10) years. The ten years are counted from the date you filed your bankruptcy.
This does not mean you can’t get a house, a car, a loan, or a credit card for ten years. In fact, you can probably get credit even before your bankruptcy is over! The question is, how much interest and fees will you have to pay? And, can you afford your monthly payments, so you don’t begin a new cycle of painful financial problems.
Which Debts Do I Still Owe After Bankruptcy?
When your bankruptcy is completed, many of your debts are “discharged.” This means they are canceled and you are no longer legally obligated to pay them.
However, certain types of debts are NOT discharged in bankruptcy.
The following debts are among the debts that generally may not be canceled by bankruptcy:
* Alimony, maintenance or support for a spouse or children.
* Student loans. Almost no student loans are canceled by bankruptcy. But you can ask the court to discharge the loans if you can prove that paying them is an “undue hardship.” Occasionally, student loans can be canceled for reasons not related to your bankruptcy when, for example, the school closed before you completed the program or if you have become disabled. There are also many options for reducing your monthly payments on student loans, even if you can’t discharge them.
* Money borrowed by fraud or false pretenses. A creditor may try to prove in court during your bankruptcy case that you lied or defrauded them, so that your debt cannot be discharged. A few creditors (mainly credit card companies) accuse debtors of fraud even when they have done nothing wrong. Their goal is to scare honest families so that they agree to reaffirm the debt. You should never agree to reaffirm a debt if you have done nothing wrong. If the company files a fraud case and you win, the court may order the company to pay your lawyer’s fees
* Most taxes. The vast majority of tax debts cannot be discharged. However, this can be a complicated issue. If you have tax debts you will need to discuss these issues with your lawyer.
* Most criminal fines, penalties and restitution orders. This exception includes even minor fines, including traffic tickets.
* Drunk driving injury claims.
If you have debts that may not be discharged, you should discuss with your lawyer whether filing or converting to a chapter 13 may help.
Do I Still Owe Secured Debts (Mortgages, Car Loans) After Bankruptcy?
Yes and No. The term “secured debt” applies when you give the lender a mortgage, deed of trust or lien on property as collateral for a loan. The most common types of secured debts are home mortgages and car loans. The treatment of secured debts after bankruptcy can be confusing.
Bankruptcy cancels your personal legal obligation to pay a debt, even a secured debt. This means the secured creditor can’t sue you after a bankruptcy to collect the money you owe.
But, and this is a big “but,” the creditor can still take back their collateral if you don’t pay the debt. For example, if you are behind on a car loan or home mortgage, the creditor can ask the bankruptcy court for permission to repossess your car or foreclose on the home. Or the creditor can just wait until your bankruptcy is over and then do so. Although a secured creditor can’t sue you if you don’t pay, that creditor can usually take back the collateral.
For this reason, if you want to keep property that is collateral for a secured debt, you will need to catch up on the payments and continue to make them during and after bankruptcy, keep any required insurance, and you may have to reaffirm the loan.
What Is Reaffirmation?
Although you filed bankruptcy to cancel your debts, you have the option to sign a written agreement to “reaffirm” a debt. If you choose to reaffirm, you agree to be legally obligated to pay the debt despite bankruptcy. If you reaffirm, the debt is not canceled by bankruptcy. If you fall behind on a reaffirmed debt, you can get collection calls, be sued, and possibly have your pay attached or other property taken.
Reaffirming a debt is a serious matter. You should never agree to a reaffirmation without a very good reason.
Do I Have to Reaffirm Any Debts?
No. Reaffirmation is always optional. It is not required by bankruptcy law or any other law. If a creditor tries to pressure you to reaffirm, remember you can always say no.
Can I Change My Mind After I Reaffirm a Debt?
Yes. You can cancel any reaffirmation agreement for sixty (60) days after it is filed with the court. You can also cancel at any time before your discharge order. To cancel a reaffirmation agreement, you must notify the creditor in writing. You do not have to give a reason. Once you have canceled, the creditor must return any payments you made on the agreement.
Also, remember that a reaffirmation agreement has to be in writing, has to be signed by your lawyer or approved by the judge, and has to be made before your bankruptcy is over. Any other reaffirmation agreement is not valid.
Do I Have to Reaffirm on the Same Terms?
No. A reaffirmation is a new contract between you and the lender. You should try to get the creditor to agree to better terms such as a lower balance or interest rate. You can also try to negotiate a reduction in the amount you owe. The lender may refuse but it is always worth a try.
Should I Reaffirm?
If you are thinking about reaffirming, the first question should always be whether you can afford the monthly payments. Reaffirming any debt means that you are agreeing to make the payments every month, and to face the consequences if you don’t.
If you have any doubts whether you can afford the payments, do not reaffirm. Caution is always a good idea when you are giving up your right to have a debt canceled.
Before reaffirming, always consider your other options. For example, instead of reaffirming a car loan you can’t afford, can you get by with a less costly used car for a while?
Some offers to reaffirm may seem attractive at first. Let’s say a department store lets you keep your credit card if you reaffirm $1000 out of the $2000 you owed before bankruptcy. They say it will cost you only $25 per month and they will also give you a $500 line of credit for new purchases. What they might not tell you is that they will give you a new credit card in a few months even if you do not reaffirm. More importantly, though, you should understand that you are agreeing to repay $1000 plus interest that the law says you can have legally canceled. This is a big price to pay for $500 in new credit.
Do I Have Other Options for Secured Debts?
You may be able to keep the collateral on a secured debt by paying the creditor in a lump sum the amount the item is worth rather than what you owe on the loan. This is your right under the bankruptcy law to “redeem” the collateral.
Redeeming collateral can save you hundreds of dollars. Since furniture, appliances and other household goods go down in value quickly once they are used, you may redeem them for a lot less than their original cost or what you owe on the account.
You may have another option if the creditor did not loan you the money to buy the collateral, like when a creditor takes a lien on household goods you already have. You may be able to ask the court to “avoid” this kind of lien. This will make the debt unsecured.
Do I Have to Reaffirm Car Loans, Home Mortgages?
If you are behind on a car loan or a home mortgage and you can afford to catch up, you can reaffirm and possibly keep your car or home. If the lender agrees to give you the time you need to get caught up on a default, this may be a good reason to reaffirm. But if you were having trouble staying current with your payments before bankruptcy and your situation has not improved, reaffirmation may be a mistake. The collateral is likely to be repossessed or foreclosed anyway after bankruptcy, because your obligation to make payments continues. If you have reaffirmed, you could then be required to pay the difference between what the collateral is sold for and what you owe.
If you are up to date on your loan, you may not need to reaffirm to keep your car or home. Some lenders will let you keep your property without signing a reaffirmation as long as you continue to make your payments. In some parts of the country, you have this as a legal right. Check with your lawyer.
And What About Credit Cards and Department Store Cards?
It is almost never a good idea to reaffirm a credit card. Reaffirming means you will pay bills that your bankruptcy would normally wipe out. That can be a very high price to pay for the convenience of a credit card. Try paying cash for a while. Then in a few years, you can probably get a new credit card, that won’t come with a large unpaid balance!
If you do reaffirm, try to get something in return, like a lower balance, no interest on the balance, or a reasonable interest rate on any new credit. Don’t be stuck paying 18-21 percent or higher!
Some department store credit cards may be secured. The things you buy with the credit card may be collateral. The store might tell you that they will repossess what you bought, such as a TV, VCR, or sofa, if you do not reaffirm the debt. Most of the time, stores will not repossess used merchandise. So, after a bankruptcy, it is much less likely that a department store would repossess “collateral” than a car lender.
However, repossession is possible. You have to decide how important the item is to you or your family. If you can replace it cheaply or live without it, then you should not reaffirm. You can still shop at the store by paying cash, and the store may offer you a new credit card even if you don’t reaffirm. (Just make sure that your old balance is not added into the new account.)
For Example:
Some offers to reaffirm may seem attractive at first. Let’s say a department store lets you keep your credit card if you reaffirm $1000 out of the $2000 you owed before bankruptcy. They say it will cost you only $25 per month and they will also give you a $500 line of credit for new purchases. What they might not tell you is that they will give you a new credit card in a few months even if you do not reaffirm. More importantly, though, you should understand that you are agreeing to repay $1000 plus interest that the law says you can have legally canceled. This is a big price to pay for $500 in new credit.
Using Credit Wisely After Bankruptcy
Beware of Credit Offers Aimed at Recent Bankruptcy Filers
“Disguised” Reaffirmation Agreement
Carefully read any credit card or other credit offer from a company that claims to represent a lender you listed in your bankruptcy or own a debt you discharged. This may be from a debt collection company that is trying to trick you into reaffirming a debt. The fine print of the credit offer or agreement will likely say that you will get new credit, but only if some or all of the balance from the discharged debt is added to the new account.
“Secured” Credit Card
Another type of credit marketed to recent bankruptcy filers as a good way to reestablish credit involves “secured” credit cards. These are cards where the balances are secured by a bank deposit. The card allows you a credit limit up to the amount you have on deposit in a particular bank account. If you can’t make the payments, you lose the money in the account. They may be useful to establish that you can make regular monthly payments on a credit card after you have had trouble in the past. But since almost everyone now gets unsecured credit card offers even after previous financial problems, there is less reason to consider allowing a creditor to use your bank deposits as collateral. It is preferable not to tie up your bank account.
Credit Repair Companies
Beware of companies that claim: “We can erase bad credit.” These companies rarely offer valuable services for what they charge, and are often an outright scam. The truth is that no one can erase bad credit information from your report if it is accurate. And if there is old or inaccurate information on your credit report, you can correct it yourself for free.
Avoid High Cost Predatory Lenders
Don’t assume that because you filed bankruptcy you will have to get credit on the worst terms. If you can’t get credit on decent terms right after bankruptcy, it may be better to wait. Most lenders will not hold the bankruptcy against you if after a few years you can show that you have avoided problems and can manage your debts.
Be wary of auto dealers, mortgage brokers and lenders who advertise: “Bankruptcy? Bad Credit? No Credit? No Problem!” They may give you a loan after bankruptcy, but at a very high cost. The extra costs and fees on these loans can make it impossible for you to keep up the loan payments. Getting this kind of loan can ruin your chances to rebuild your credit.
Mortgage Loans
If you own your home, some home improvement contractors, loan brokers and mortgage lenders may offer to give you a home equity loan despite your credit history. These loans can be very costly and can lead to serious financial problems and even the loss of your home. Avoid mortgage lenders that:
* Charge excessive interest rates, “points,” brokers’ fees and other closing costs;
* Require that you refinance your current lower interest mortgage or pay off other debts;
* Add on unnecessary and costly products, like credit insurance;
* Make false claims of low monthly payments based on a “teaser” variable interest rate;
* Include a “balloon” payment term that requires you to pay all or most of the loan amount in a lump sum as the last payment;
* Charge a prepayment penalty if you pay off the loan early;
* Change the terms at closing;
* Make false promises that the rate will be reduced later if you make timely payments ;
* Pressure you to keep refinancing the loan for no good reason once you get it.
Small Loans
It is always best to save some money to cover unexpected expenses so you can avoid borrowing. But if you are in need of a small loan, avoid the following high cost loans:
Payday loans
Some “check cashers” and finance companies offer to take a personal check from you and hold it without cashing it for one or two weeks. In return, they will give you an amount of cash that is less than the amount of your check. The difference between the amount of your check and the cash you get back in return is interest that the lender is charging you. These payday loans are very costly. For example, if you write a $256 check and the lender gives you $200 back as a loan for two weeks, the $56 you pay equals a 728-percent interest rate! And if you don’t have the money to cover the check, the lender will either sue you or try to get you to write another check in a larger amount. If you choose to write another check, the lender gets more money from you and you get further into debt.
Auto title loans
For many years, pawn shops have made small high-interest loans in exchange for property. A new type of “pawn” is being made by title lenders who will give you a small loan at very high-interest rates (from 200 percent to 800 percent) if you let them hold your car title as collateral for the loan. If you fall behind on the payments, the lender can repossess your car and sell it.
Rent-to-own
By renting a TV, furniture or appliance from a rent-to-own company, you will often pay three or four times more than what it would cost to buy. The company may make even more profit on you because the item you are buying may be previously used and returned. And if you miss a payment, the company may repossess the item leaving with you no credit for the payments you made.
Tax refund anticipation loans
Some tax return preparers offer to provide an “instant” tax refund by arranging for loans based on the expected refund. The loan is for a very short period of time between when the return is filed and when you would expect to get your refund. Like other short-term loans, the fees may seem small but amount to an annual interest rate of 200 percent or more. It is best to patient and wait for the refund.
What You Can Do to Avoid Problems
* If you don’t want it, don’t get it. If you have doubts about whether you really need the loan or service, or whether you can afford it, don’t let yourself get talked into it by a salesperson using high-pressure tactics. You can always walk away from a bad deal, even at the last minute.
* Shop around. You may qualify for a loan with normal rates from a reputable bank or credit union. Don’t forget that high-cost lenders are counting on your belief that you cannot get credit on better terms elsewhere. Do not let feelings of embarrassment about your past problems stop you from shopping around for the best credit terms.
* Compare credit terms. Do not consider just the monthly payment. Compare the interest rate by looking at the “annual percentage rate,” as this takes into account other fees and finance charges added on the loan. Make sure you know exactly what fees are being charged for credit and why.
* Read before you sign. If you have questions, get help from a qualified professional to review the paperwork. A lender that will not let you get outside help should not be trusted.
* If you give a lender a mortgage in a refinancing deal, remember your cancellation rights. In home mortgage refinancings, federal law gives you a right to cancel for three days after you sign the papers. Exercise these rights if you feel you signed loan papers and got a bad deal. Don’t let the lender talk you out of cancelling.
* Get help early. If you begin to have financial problems, or you are thinking of consolidating unmanageable debts, get help first from a local non-profit housing or debt counseling agency.Dunne Law Offices, P.C.
(215) 854-6342
1500 JFK Blvd, Two Penn Center, Suite 200
Philadelphia, PA 19102
dunnelawoffices@gmail.com
www.dunnelawoffices.com
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