What will Bankruptcy do to my credit? 03/26/2010
First of all, bankruptcy is for people who are finding hard to make their credit payments. In bankruptcy jargon, this is “hardship,” without which you do not qualify to file. So, for those people who have a hardship, their credit is already affected – or is about to become affected. Late payments, bad payments, missed payments, and maxed out credit cards begin to inundate the credit report - the more there is of that, the less likely that person will get a loan of any kind. Therefore, the credit worthiness of that individual (or couple) is no longer stable, which has a huge impact on credit.
Under the bankruptcy codes of the federal government, a discharge of debts also has the effect of completely erasing the payment history. That means that when creditors pull your credit history they do not see months (or even years) of bad payment history. No late payments. No bad payments (lower than the minimum due). No missed payments. They do not even see your old creditors. It is all gone.
Now, under the same bankruptcy codes, the bankruptcy will likely stay on your credit report for 10 years. It can stay on for longer, but only under very limited situations (getting credit for a loan larger than $150,000, or when being considered for employment with a salary of $75,000 or more), and even then it is not mandatory.
The best part is that as soon as you get your discharge of creditors, you can begin to rebuild your credit. You can do this by using a credit card that survived your bankruptcy because it had no balance, or by establishing a small credit line with a bank or credit card company. Yes, your credit is a little scarred from the bankruptcy, but you are a prime borrower because you are locked in for at least 8 years; you cannot file bankruptcy for another 8 years, so the creditors figure you have no way to get rid of the debt other than by paying them off.
Now, keep in mind, you will not get $10,000 of credit right away. You will likely get a $500 credit card with a $500 cash deposit (giving them some security for the debt), and that will be within months of filing!
Once you get this kind of card, you can begin the rebuilding process. More and more offers will come in through time, and within the first year you can get a car loan, and at about two years you can qualify for certain home loans. And to tell the truth, if you were to pay off your debts right now, the time lines would not be much different; that is because they like to see long periods of good payments, which bankrutpcy can provide. Immediately after bankruptcy, you can start to show the creditors that you have learned your lesson, that you know how to manage your money, and that the bankruptcy was a fresh start on a new life.
And that is what we offer in our offices; we produce new beginnings for consumers who need a second chance. We understand what you are going through, and what you will be going through.
Isn't Going Bankrupt Like Welching on Debt? 03/26/2010
It depends on how you look at it. (How's that for an attorney response for you?)
Credit Card companies charge more percentage than any other creditor out there. No home loan is going to have over 20% interest. This is because, unlike home loans, car loans, and the like, credit card companies issue what is called “Unsecured Debt.” The only way they can feel secure about there debt is if they charge you tons of interest – it is there way of making sure that you don’t leave them hanging. The interest is how they secure their debt.
And generally, these interest rates only come about because the consumer was late on a payment. That shows that the interest rate not only acts as a way to secure their debts, but it also their built-in Bankruptcy Plan. Once a consumer is late on a debt, the creditor is figuring that bankruptcy is right around the corner. So, to try and get back as much as it can before that happens, they jack the interest rates up in an attempt to recover at least some of their money.
Usually, as a result, the payments become too hard to handle. Even if you make a payment, your bill comes back showing that you owe more money than before the payment was made. By cutting off your chances of repaying them, they have forced you into a difficult situation – either pay them three times the amount of the depreciating value, or file for bankruptcy and let them handle the cost.
My money is on the credit card companies to survive. Bankruptcy in America has been around since the Constitution (look for "bankruptcies"), and American Express, Visa, Discover, and all the other credit card companies are still around. THEY took the risk to lend you money. The economy tanked, you lost your job, or whatever, and now you can’t make any more payments to them. But guess what – they would love to throw you under the bus and let you sink while you try to pay them off; so, why not do the same to them? If it comes down to you keeping your house, sanity, and paychecks, or them keeping their billion dollar bonuses, which would YOU rather choose?
There is nothing wrong with bankruptcy. Is it built into our system of credit, it is a part of it, and it is better than loosing all that you have worked hard for. Come on in, and we can discuss how to better help you today.
Bankruptcy v. Debt Relief Programs 03/26/2010
In my experience, many people attempt to pay off their surmounting debts by paying fees to a Debt Relief Program. My advice is to really evaluate these programs before biting that huge bullet. They usually cost more than bankruptcy, they claim to have special powers to negotiate the terms, and even if they are successful it will cost you more in taxes than it is worth.
Here are the facts: Bankruptcy can be limited in cost to between $1500 and $2500. Most Debt Relief Programs cost more than this in just fees. Why spend that much money just to have to pay off your bills, when you can spend less and eliminate your debt entirely?
Secondly, they do not have super powers to re-negotiate your credit contracts. They have no more power than you to do that, so you are only paying them to make phone calls you yourself can make. You may value your time, but probably not that much.
Furthermore, they take their fees off the top, waiting until you have paid them off before any of that monthly payment you send in goes to the credit card companies. Read that contract carefully. I have seen too many people come in after paying thousands of dollars to a Debt Relief program, only to have a lawsuit in their hands from one or more of the credit card companies. (They usually sign up for bankruptcy right away, just FYI).
Lastly, even if they are successful and they negotiate your balances down – instead of owing them $60,000, you now owe only $10,00 – the IRS recognizes that $50,000 as income. It is considered a gift from the creditors to you. You will receive a 1099-C in the mail, the IRS will know about it, and you will have to pay taxes on it.
Bankruptcy avoids all of this. All of your unsecured debts are wiped clean after bankruptcy – you owe no one. An attorney has all the power you need to get to this point, and all in one relatively affordable price. Lastly, the IRS doesn’t recognize the debt as income – that means no tax implications at all! You walk away from the bankruptcy having spent less money, less time, and saving more money than if you had gone through a Debt Relief program. I know where I’d place my future and income – bankruptcy, all the way.
What is Chapter 7 Bankruptcy? 03/26/2010
Chapter 7 Bankruptcy is a Federal Program, which is usually referred to as “Liquidation” Bankruptcy. The name is more menacing than it really is. The idea is this: your creditors are being kept at bay behind a large dam, like a lake. You, your home, and all your possessions are directly downstream of this dam. The whole time your creditors are there they are harassing you, and they won’t go away until either you pay them off, or you let the dam break. Bankruptcy acts to break that dam and let them all loose, NEVER to bother you again. However, your possessions (the ones you actually own or have equity in) are at risk – that is the catch.
But, the federal government has established two different methods of protecting at least some of your possessions. One is a figurative wall that acts to protect your house and at least most of the things in it. The other is like a boat that will take on board at least most of your household items, keeping them safe.
Most of the time, we are able to protect all of your possessions utilizing one or the other of these methods. Now, every case is different, and the determination of what can be protected and what is at risk is difficult to make without a complete examination of your whole case. This metaphor is to give you an idea of what Bankruptcy entails. There is a risk, but it is our duty to help you evaluate that risk and manage it.
When you come in, we can help you better navigate this whole situation, so that you make the choice that is right for you.