I often advise my clients that if they are sitting my office discussing their financial problems with a bankruptcy lawyer, then everything needs to be on the table. The house, the cars, the big screen tv, the electronics, and even the time share (!). My job, as the bankrutpcy lawyer is to help my client chart a course of living within one’s means and getting rid of debts that are not necessary for survival. Bankruptcy is about what you need, not what you want.
To this end, my colleage Cathy Moran from the Bankruptcy Law Network, forwarded to me a link to a web page entitled "10 Financial Lies We Tell Ourselves." I recommend that you take a look at this web site, not as a means to chastise yourself, but as a tool for moving forward. Resolve that starting today, you will not make the mistakes of the past that have brought you to the brink of bankruptcy. Recognize that financial hardship can happen to anyone and that you should always prepare yourself for tough times. Whether you end up filing bankruptcy or not, use the experience of financial distress to clear away bad habits and bad decisions.
Technorati Tags: rebuilding credit after bankruptcy, avoiding financial mistakes
Filed under General consumer bankruptcy info, Post bankruptcy credit rebuilding by 
I’ve filed a chapter 13 due to divorce (no previous credit issues) and am paying rightly on my repayment plan having several years to go. I’m trying to learn ways to re-establish my credit and raise my credit score so that when done I’ll be in a strong position. Long before filing my 13, I’d bought a car and am making on-time payments. I think that will help, but since I can’t use new credit until the payment plan is over, do you have other suggestions or references (other than keep paying on time) that I can use or do? I’d be interested in books, websites, blogs, councilors, anything…
Regarding my creditors, I believe my accounts are still open. What should be done regarding those accounts and what the creditors are or are not telling the credit reporting agencies? Can I and should I close the old accounts? Also, I’ve not taken a recent look at my credit report so I don’t know what each debtor is showing? I’d appreciate your comments. There isn’t a good source for information and advice on these subjects and attorney’s are charging over $200 per hour for half baked advice that usually take the most cautious approach, even when not necessary.
–Rangeman
Jonathan Ginsberg responds: Since you are still in your Chapter 13, you can’t really do too much in terms of new credit, but you can take several steps to improve what you currently have.
1. pull your credit reports from all three credit bureaus. All open accounts should show that they are being paid thru your Chapter 13. If you have any showing a charge off or an unpaid delinquency, you should challenge these erroneous entries pursuant to the Fair Credit Reporting Act. Write letters (return receipt requested) to the particular credit bureau and request that the erroneous reporting be corrected. Debts in Chapter 13 are in payment status and should be reflected accordingly.
2. Most credit gurus advise against closing old accounts. Credit reports are basically historical records and any good credit you have, even if it is old, will help you.
3. As far as references, the best credit related information that I see regularly is at Clark Howard’s web site, Ilyce Glink’s web site and Dave Ramsey’s web site.
4. Once you are out of your Chapter 13, you should wait about two months, then request copies of all 3 credit bureau reports. All of the accounts paid in the Chapter 13 (such as credit cards and other non-pay direct accounts) should show zero balances. Frequently, I see credit reports post bankruptcy showing outstanding balances. Once you receive your Chapter 13 discharge, these balances should be zero.
Technorati Tags: restore credit after bankruptcy, Clark Howard, credit reports, challenge inaccurate credit report
Although bankruptcy filing numbers are still down in Atlanta, I am starting to see more and more activity on my web site and in email inquiries from potential clients. Nevertheless, there is still a great deal of misinformation in the general public about bankruptcy.
Yesterday, I was speaking to a potential Social Security disability client who was telling me about the debt she had incurred after she stopped working. When I suggested that bankruptcy might be an option, she responded with the statement "I thought that they changed the bankruptcy law and made it illegal to file."
My colleague, Maryland bankruptcy attorney Brett Weiss, has written an excellent article for his firm’s web site entitled "Top 15 Myths About The New Bankruptcy Law," which you can read by clicking the link. In this article, Brett sets the record straight about all the false rumors about bankruptcy.
Now that we have a new Congress, it will be interesting to see if there are any efforts to modify some of the sillier provisions of the new law (such as credit counseling or the debt relief agency disclosure requirements). My experience over the past twenty years has been that very, very few bankruptcy debtors use the bankruptcy process to manipulate the system.
Hopefully as the myths about bankruptcy are dispelled over time, those "honest but unfortunate" debtors who truly need a fresh start will again realize that bankruptcy relief still exists.
Technorati Tags: myths about new bankruptcy law, Brett Weiss, illegal to file bankruptcy, BAPCPA
This past week the U.S. Supreme Court heard oral argument on an interesting Fair Credit Reporting Act issue. In the case of Geico vs. Edo, the Supreme Court will be deciding whether insurance companies can be liable for punitive damages if they fail to notify customers that the customer’s credit score has led to higher rates.
Regardless of what the Supreme Court does, I think that the bigger issue for consumers relates to how insurance companies use your credit history in setting the price that a consumer pays for auto or homeowner’s insurance.
According to the AJC, drivers with the worst credit histories will pay almost double the price paid by a driver with very good credit. However, Georgia law permits the insurance companies to keep secret the formulas they use to decide what credit factors impact insurance premiums.
All of this begs the question of what relevance bad credit has on a driver’s likelihood to be involved in an accident.
If you thought that a bad credit score only affected your ability to finance a house or a car, think again. Even if you are not using credit, your cost of insurance will be affected by a bad credit history.
This credit score/insurance cost link serves as yet another reason for you to check your credit reports at least once a year. Since most credit reports have some errors, there is a good chance that you can improve your score simply by challenging these errors and demanding that the credit reporting agency remove the mistakes from your report.
Finally, take a look at this interesting post I found on attorney Grant Griffith’s Kansas Creditor Harassment blog about specific steps you can take to remove an old bankruptcy from your credit report.
Technorati Tags: credit reports, bad credit and insurance costs, Geico v. Edo, Fair Credit Reporting Act, attorney Grant Griffiths
In a previous post, I had written about the harsh consequences (i.e. dismissal) for debtors who fail to obtain pre-bankruptcy credit counseling. In that post I had not really discussed the substance of or usefulness of credit counseling.
The general consensus among bankruptcy lawyers has been that the credit counseling requirement is pretty much a waste of time. Virginia Beach bankruptcy lawyer Tommy Smith writes about the credit counseling requirement in Blawg De Novo that requiring debtors to go to counseling before filing bankruptcy was a little like telling someone that was sick they could go to the doctor to get medicine, but before they go to the doctor, they have to take a health class for $50, and then a second health class for another $50 after receiving the diagnosis.
Similarly, Massachusetts bankruptcy lawyer Bill McLeod points out an inherent flaw in the credit counseling requirement – one which I see regularly – by the time an individual makes the decision to seek advice from a bankruptcy lawyer, it is far too late for credit counseling. In an ideal world, individuals would seek counseling before their small financial problems became insurmountable, but, unfortunately, that is not how human nature works.
If the goal of mandatory credit counseling is to prevent bankruptcy filings, it is not working. NACBA (National Association of Consumer Bankruptcy Attorneys) did a study earlier this year and only a tiny fraction of those receiving credit counseling ended up not filing bankruptcy.
I personally have less of an issue with the pre-discharge budget counseling than do my colleagues Tommy Smith or Bill McLeod. Pre-discharge counseling comes close to the end of the process when debtors are beginning to see some light at the end of the tunnel. I suspect that mentally and emotionally they may be more receptive to budget and credit counseling (although it would be interesting to see a long term study that looks into the impact of pre-discharge counseling).
For most of my clients, the $50 pre-filing cost and the $50 pre-discharge costs basically amount to a hidden "bankruptcy tax." Given that bankruptcy filers watch every penny, it seems unfair to burden them with credit education requirements that may be a complete waste of time.
Technorati Tags: credit counseling requirement, pre-discharge budget counseling, Tommy Smith, Bill McLeod, bankruptcy reform, United States Bankruptcy Code
This morning, I met with one of my former bankruptcy clients who wanted to discuss credit restoration. I thought it might be relevant to this blog to discuss what we found on her credit report and what I advised her to do.
My client brought me a copy of her Equifax report for review. The credit report showed that most of the debts included in her Chapter 7 had the indicia “included in bankruptcy” with a zero balance and no reference to any late pays. So, it appears that in most cases, bankruptcy has the effect of wiping out credit report references to outstanding debt as well as references to late pays. This is important because late pays are a major cause of credit damage. I was actually somewhat surprised to see that the late pays were deleted.
There was one account that we had included in the Chapter 7 that was still showing as an outstanding debt. This is obviously a mistake and I drafted a “challenge letter” disputing this account balance and the associated late pay.
There was one account that had the “included in bankruptcy” indicia but had the late pay information. I drafted a “challenge letter” disputing the late pays.
There were three student loans that had late pay references. There was one 60 day late and two 30 day late pays. I encouraged my client to make every effort to tender all student loan payments timely. I also drafted a “challenge letter” disputing the late pays.
My client wanted to know what she could do to re-establish credit. I suggested that she look into getting a gasoline credit card or a department store card. Unsecured credit that is properly managed is the quickest way to improve one’s credit score.
Finally, I noted to my client that we only had the Equifax report on hand and that she needed to request credit reports from Experian and Trans Union.
My client advised me that she and her husband hoped to be able to qualify for a house within the next year. I suggested that she contact a mortgage broker for more information about rates and credit scores in the current market.
Interestingly, my client advised me that her husband, who did not file bankruptcy, but participated in a payment plan with his creditors, actually had a lower credit score than she (the bankruptcy client) had. Interesting.
The bottom line is that we found one definite error and several areas ripe for challenge. I hope and expect that we can increase her credit score by 100 points within the next few months.
I will update this blog entry as we see what effect the challenge letters and my advice will have.
–Jonathan
Filed under Post bankruptcy credit rebuilding by
Credit Reporting Agencies Deleting Positive Information?
One of my recent Chapter 7 clients (case successfully discharged) wrote me to say that he has noticed a disturbing occurrence on his credit reports. He advises that positive credit information (a paid off home mortgage and five other paid in full accounts) are no longer showing up on his credit report. Positive credit, of course, helps your credit score go up.
I did some research on this issue and found the Federal Trade Commission’s Official Staff Commentary Section 607 item 7, which reads:
Consumer reporting agencies are not required to include all existing derogatory or favorable information about a consumer in their reports. (See, however, discussion in section 611, item 14, infra, concerning conveying consumer dispute statements.) However, a consumer reporting agency may not mislead its subscribers as to the completeness of its reports by deleting nonderogatory information and not disclosing its policy of making such deletions.
I read this as meaning that credit reporting agencies may delete favorable information as they wish, just as they may delete unfavorable information before the 7 year maximum reporting time for unfavorable information. Presumably, however, it is misleading for a credit reporting agency to purge your file of positive information before the 7 years period but retain adverse information without disclosing its policy about how it retains and deletes information.
My client indicates that he has written a challenge letter to the credit bureau in his case – I would suggest to him that he include in his challenge a request for a copy of the policy statement about how the credit reporting agency purges data that was sent to the credit bureau’s members.
Tags: credit bureau challenge, credit bureaus, credit scoring, fair credit reporting act, ftc official staff commentary, purging of positive credit information
Filed under Consumer protection, Post bankruptcy credit rebuilding by Jonathan
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